Primary market subdued as market focuses on Fed; Alcoa, IADB price; RBC notes firm

By Aleesia Forni

Virginia Beach, Sept. 17 – Inter-American Development Bank and Alcoa Inc. sold new bond offerings on Wednesday, while other issuers kept to the sidelines as the market focused on the Federal Open Market Committee’s statement.

The Federal Reserve wrapped up its two-day policy meeting during the session, announcing that it plans to continue its accommodative policies for a “considerable time.”

In primary action, Alcoa came to market with a split-rated $1.25 billion issue of 10-year senior notes, pricing in line with talk.

There was also a $500 million offering of four-year notes from Inter-American Development Bank.

Around $14 billion of supply has priced in the high-grade primary this week.

With another slow day expected on Thursday, the week’s issuance is likely to fall short of what sources had expected to be $20 billion to $25 billion.

High-grade corporate bond spreads were mostly unchanged to slightly tighter on Wednesday amidst light activity with all eyes on the Fed.

The Markit CDX North American Investment Grade series 22 index was 1 basis point tighter at a spread of 59 bps.

Royal Bank of Canada’s new $1.75 billion 2.2% five-year covered bond traded around 1 bp better in the secondary market, a trader said.

The issue was quoted at 42 bps bid.

The notes (expected: Aaa/AAA/AAA) priced with a spread of Treasuries plus 43.7 bps, or mid-swaps plus 27 bps, on Wednesday.

Alco crossovers

Alcoa launched and priced a $1.25 billion issue of 10-year senior notes (Ba1/BBB-/BB+) at par to yield 5 1/8% on Wednesday, according to a market source.

The yield printed inside of initial guidance that came in the mid-5% yield context.

The deal, which was announced Tuesday at benchmark size, priced on the investment-grade desk but trades on the high-yield desk, according to a high-yield investor.

The ratings from Moody’s Investors Service and Fitch Ratings are stable, but the BBB- rating from Standard & Poor's has a negative outlook, the source added.

Morgan Stanley & Co. LLC and Credit Suisse Securities (USA) LLC were the active bookrunners.

Citigroup Global Markets Inc., Goldman Sachs & Co. and J.P. Morgan Securities LLC were the passive bookrunners.

The notes have a par call three months prior to maturity but are otherwise non-callable.

Proceeds will be used to fund the acquisition of the Firth Rixson business. If the acquisition is terminated or not consummated by 5 p.m. ET on April 1, 2015, there is a mandatory call at 101.

Alcoa is a New York-based aluminum producer.

IADB brings $500 million

Inter-American Development Bank sold $500 million of 1.5% notes (Aaa/AAA/) due Sept. 25, 2018 on Wednesday at mid-swaps minus 5 bps, a market source said.

Price talk was set in the mid-swaps minus 4 bps area.

The notes priced at 99.653 to yield 1.59%.

Citigroup Global Markets and Daiwa Securities were the bookrunners.

The issuer provides financing for Latin American and Caribbean countries and is based in Washington, D.C.

Bank/broker CDSs mostly flat

Investment-grade bank and brokerage CDS prices declined on Wednesday, according to a market source.

Bank of America Corp.’s CDS costs declined 2 bps to 64 bps bid, 67 bps offered. Citigroup Inc.’s CDS costs were 1 bp lower at 63 bps bid, 66 bps offered. JPMorgan Chase & Co.’s CDS costs also fell 1 bp to 52 bps bid, 56 bps offered. Wells Fargo & Co.’s CDS costs ended 1 bp lower 39 bps bid, 44 bps offered.

Merrill Lynch’s CDS costs were 2 bps lower at 66 bps bid, 70 bps offered. Morgan Stanley’s CDS costs ended 2 bp lower at 72 bps bid, 75 bps offered. Goldman Sachs Group, Inc.’s CDS costs declined 1 bp to 77 bps bid, 80 bps offered.

Paul Deckelman and Paul A. Harris contributed to this review.

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