PepsiCo prices as tone continues to improve; Bank of Montreal preferred deal in focus

By Aleesia Forni and Cristal Cody

Virginia Beach, Oct. 8 – The high-grade market saw another solid session on Thursday following a soft start to the week, with PepsiCo Inc. attracting strong demand for a new $3 billion offering of notes.

The four-part sale, which included two-year fixed- and floating-rate notes, along with five- and 30-year tranches, sold between 13 basis points and 25 bps tighter than initial spread thoughts.

The company headed to the primary following a solid third-quarter earnings announcement during the previous session, reporting that organic revenues were up 7.4% year over year.

The day’s two other deals, an upsized $400 million issue priced by Host Hotels & Resorts, LP and a $500 million offering from Invesco Ltd., also fared well on Thursday.

Even on the heels of the back-to-back positive sessions the investment-grade market has seen, one source opined that the market is not at a place to handle a significant amount of supply in the near-term.

“It’s day-to-day at this point,” the source added.

Bank of Montreal’s C$600 million offering of five-year preferred shares with a 5.85% annual dividend on Thursday caused a stir in the Canadian bond markets and sent bank subordinated bonds 10 bps to 15 bps wider by noon in the secondary market, a source said.

“It was notably large with a notably high yield,” the source said. “That upset our bond market for bank subordinated debt because that’s the closest comparison in the bond market to a preferred share. The market did not like the implication that if a major bank is willing to pay that much for a preferred share deal, then, arguably, they would be willing to pay more for a NVCC subdebt deal than what we thought.”

Bank of Montreal announced early in the day that it privately placed C$600 million of non-cumulative rate reset class B preferred shares with a 5.85% annual dividend for the initial period ending Nov. 25, 2020.

The bank sold 600,000 shares of the series 36 non-viability contingent capital preferred stock at C$1,000 per share.

Under the new Basel III rules, both preferred shares and subordinated bonds will have to be structured as nonviability contingent capital debt.

“The banks have old style subordinated debt that’s maturing, and it has to be replaced with the new style of NVCC debt,” the source said. “There’s expectations a bunch of these older issues will be called later this calendar year and will have to be rolled over with NVCC debt. Hence, if they’re willing to pay this much for NVCC preference shares, they’re probably going to pay more for the NVCC subordinated debt because there will be supply in the next couple of months.”

In the U.S. secondary market on Thursday, investment-grade bonds were mixed.

PepsiCo’s existing bonds were unchanged.

Oracle Corp.’s senior notes (A1/AA-/A+) tightened 4 bps to 5 bps during the session.

The Markit CDX North American Investment Grade 25 index firmed 2 bps to end at a spread of 81 bps.

PepsiCo four-parter

PepsiCo sold a $3 billion offering of senior notes (A1/A) in four tranches on Thursday, according to a market source.

A $450 million 1% tranche of two-year notes sold at 99.789 to yield 1.106%, or Treasuries plus 47 bps.

The company also sold $700 million of two-year floating-rate notes at par to yield Libor plus 35 bps.

Also, $1.1 billion of 2.15% five-year notes sold at 99.892 to yield 2.173%, or Treasuries plus 77 bps.

There was a $750 million 4.45% tranche of notes due April 14, 2046 that priced with a 150 bps spread over Treasuries. The issue sold at 99.735 to yield 4.466%.

All fixed-rate tranches priced at the tight end of guidance.

Bookrunners for the offering are BofA Merrill Lynch, Citigroup Global Markets Inc. and Deutsche Bank Securities Inc.

Proceeds will be used for general corporate purposes, including the repayment of commercial paper.

PepsiCo is a Purchase, N.Y.-based global food and beverage company.

Invesco prices tight

Invesco Finance plc, a subsidiary of Invesco Ltd., sold $500 million of 3.75% senior notes (A2/A/A-) due Jan. 15, 2026 at Treasuries plus 170 bps on Thursday, according to a market source and an FWP filed with the Securities and Exchange Commission.

Pricing was at 99.742 to yield 3.779%.

Guidance was set in the 175 bps area over Treasuries, having firmed from talk set in the 187.5 bps area over Treasuries.

Morgan Stanley & Co. LLC, BofA Merrill Lynch and Citigroup Global Markets Inc. are the joint bookrunners.

Invesco, an Atlanta-based global investment management firm, intends to use the proceeds to repay all or a portion of the amount currently drawn on its existing credit facility and for general corporate purposes.

Host Hotels upsizes

Host Hotels & Resorts sold an upsized $400 million offering of 4.5% series F senior notes (Baa2/BBB) due Feb. 1, 2026 on Thursday at 248 bps over Treasuries, according to a market source and an FWP filed with the SEC.

Pricing was at 99.68 to yield 4.54%.

The deal’s size was originally announced at $350 million.

BofA Merrill Lynch, J.P. Morgan Securities LLC, Goldman Sachs & Co. and Deutsche Bank Securities Inc. are the joint bookrunners.

Proceeds, along with cash on hand and borrowings from a new term loan, will be used to redeem $500 million of the company’s 6% series V notes due 2020 at a price of $515 million.

Host Hotels is a real estate investment trust based in Bethesda, Md., that owns and operates hotel properties.

FHLB global bonds

Also on Thursday, Federal Home Loan Banks priced $3 billion of 0.625% two-year global bonds on Thursday at 9.5 bps over Treasuries, according to a company news release.

Pricing was at 99.783 to yield 0.732%.

The bonds sold at the tight end of guidance set in the Treasuries plus 10 bps area.

Lead managers for the issue are Barclays, HSBC Securities (USA) Inc. and Wells Fargo Securities LLC.

FHLBanks are 12 government-sponsored funding providers.

PepsiCo unchanged

PepsiCo’s 2.75% notes due 2025 were unchanged on Thursday at 95 bps bid, according to a market source.

The company sold $1 billion of the notes (A1/A-/A) on April 27 at a spread of Treasuries plus 87 bps.

PepsiCo is a Purchase, N.Y.-based global food and beverage company.

Oracle tightens

Oracle’s 2.95% notes due 2025 firmed 5 bps over the day to 107 bps bid, a market source said.

Oracle sold $2.5 billion of the notes on April 28 at 100 bps over Treasuries.

Oracle’s 4.125% bonds due 2045 traded 4 bps better at 149 bps bid.

Oracle sold $2 billion of the bonds in the April 28 offering at Treasuries plus 145 bps.

The computer software and technology company is based in Redwood City, Calif.

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