IBM gets record 10-year rate; Daimler sells after Q2 earnings; new issues tighten in trading

By Aleesia Forni and Andrea Heisinger

New York, July 25 - Top-rated companies made their way to the high-grade bond market on Wednesday, following in the footsteps of two large deals the previous day.

International Business Machines Corp. and Daimler Finance North America LLC are both single-A rated names that chose to tap the market for the day.

Toyota Motor Credit Corp. priced $500 million of floating-rate notes due 2014.

There was also a trade from AngloGold Ashanti Holdings plc, which was done more in the emerging markets space.

IBM took advantage of low borrowing rates and priced $1 billion of 10-year notes with a 1.875% coupon, a record low for that maturity. The debt was priced to yield 2.053%, or 65 basis points over Treasuries, in line with guidance. The company also holds the low coupon records for three-year notes and the seven-year maturity.

"[The company was] trying to get below 2[%]," a source close to the deal said. IBM has priced bonds opportunistically in recent deals, resulting in the record-low coupons it has achieved.

"[IBM] achieved it with flying colors."

The previous record was set by 3M Corp. in a two-tranche deal priced on June 21 that included a 2% 10-year note.

When asked whether IBM's trade Wednesday was opportunistic, a source said: "[The issuer] wouldn't admit to it, but they came out with the GCP as use of proceeds, so it would seem they were just trying to set a record coupon."

Germany's Daimler Finance sold $2.25 billion of bonds with maturities of three years and seven years via Rule 144A and Regulation S.

Daimler AG, the parent company, reported second-quarter earnings earlier on Wednesday that showed a drop in profit from the same period the previous year, although revenue was up and its Q2 numbers beat analyst expectations.

Companies jumping into the market following earnings, or coming in opportunistically, are being met with open arms by investors, a market source said.

"There hasn't been much [supply] lately, so these good names are ideal," he said.

A source who worked on the IBM deal joked that now that the company cracked the 2% coupon with its new deal, others would work to best it.

"Now we're going to see [Johnson & Johnson] try for 1.5%," he said.

Thursday should see more companies pricing paper, with at least one in the "broader industrial" sector ready to tap the market, the source said. "It should be a good one."

The Markit CDX Series 18 North American Investment Grade index tightened 1 bps to a spread of 116 bps on Wednesday.

The new issues from IBM and Daimler tightened 1 bps to 5 bps in the secondary market, a market source said.

Additionally, investment-grade bank and brokerage credit default swaps were mixed on the day.

Both J.P. Morgan's and Wells Fargo's CDS costs declined 2 bps. J.P. Morgan's CDS costs traded at 144 bps bid, 149 bps offered, while Wells Fargo's CDS costs were seen at 105 bps bid, 110 bps offered. Meanwhile, Bank of America's CDS costs tightened 3 bps to 270 bps, 280 bps offered. Citi's CDS costs rose 3 bps to 265 bps bid, 270 bps offered.

Brokers were also mixed on Wednesday. Merrill Lynch's CDS costs declined 3 bps to 283 bps bid, 293 bps offered. Goldman Sachs' CDS costs traded 5 bps tighter at 300 bps bid, 305 bps offered. Morgan Stanley's CDS costs were unchanged at 388 bps bid, 393 bps offered.

IBM sets record low

International Business Machines priced $1 billion of 1.875% 10-year notes (Aa3/AA-/A+) at a spread of Treasuries plus 65 bps, a market source said.

The bonds priced in line with price guidance, the source said. There was roughly $2 billion in demand for the notes.

The notes traded at 64 bps bid, 62 bps offered near the day's close, a bond source said.

BNP Paribas Securities Corp., Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and UBS Securities LLC were bookrunners.

Proceeds are being used for general corporate purposes.

IBM was last in the market with a $1.5 billion offering in two tranches on May 8. The company's last sale of 10-year notes carried a coupon of 2.9% and priced at 62.5 bps over Treasuries as part of a $1.85 billion deal in two parts on Oct. 27, 2011.

The information technology and computer company is based in Armonk, N.Y.

Daimler prices $2.25 billion

Daimler Finance North America sold $2.25 billion of notes (A3/A-/A-) in two maturities, a source close to the trade said.

The deal was more than two times oversubscribed with about $5 billion on the books, the source said.

The $1.5 billion of 1.3% three-year notes priced at a spread of Treasuries plus 108 bps. The tranche sold tighter than guidance in the 115 bps area, the source said.

A second part was $750 million of 2.25% seven-year notes sold at 145 bps over Treasuries. The notes were priced at the tight end of guidance in the 150 bps area.

A trader saw the three-year notes trading at 106 bps bid, 101 bps offered and the seven-year tranche trading at 140 bps bid, 135 bps offered.

BNP Paribas Securities Corp., Citigroup Global Markets Inc., HSBC Securities (USA) Inc. and Mitsubishi UFJ Securities (USA) Inc. were bookrunners.

The deal was priced under Rule 144A and Regulation S.

Daimler Finance last sold bonds in the U.S. market in a $1.75 billion deal in three tranches on April 2. A 1.65% three-year note from that offering priced at 118 bps over Treasuries.

The financing unit of automaker Daimler AG is based in Stuttgart, Germany.

Toyota's floaters

Toyota Motor Credit priced $500 million of medium-term floating-rate notes due in 2014 (Aa3/AA-) at par to yield Libor plus 16.5 bps, according to an FWP with the Securities and Exchange Commission.

HSBC Securities (USA) Inc. was agent.

The funding arm of Toyota is based in Torrance, Calif.

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