San Diego Gas & Electric, Interstate P&L, Norfolk Southern among issuers; industrials tighten

By Andrea Heisinger and Cristal Cody

New York, Aug. 23 - San Diego Gas & Electric Co., Interstate Power & Light Co., Norfolk Southern Corp. and Kimco Realty tapped the investment-grade bond market on Monday.

Both of the utilities priced their deals by early afternoon.

San Diego Gas & Electric sold $500 million of 30-year first mortgage bonds, while Interstate Power & Light priced $200 million of 10-year debentures.

The Norfolk Southern deal was one of the most talked about for the day, not because of its size, but because it was a reopening of a 100-year bond. The company upsized to $250 million and came at what one source called "pretty good" levels.

The railroad operator re-tapped the market to take advantage of low interest rates like everyone else. One source speculated that some insurance companies were part of the accounts on the books.

It's expected to be an active week ahead, with sources saying they've been on calls with probable issuers for much of the day.

"I would say we have a fair amount of deals," one source said.

Another source at a larger syndicate desk called the volume "modest" and said he heard there was about $5 billion to $10 billion expected out of the investment-grade market for the week.

"We have Labor Day coming up and that's a killer," he said. "I would think people are getting in this week."

The new deal from San Diego Gas & Electric firmed in the secondary market, which was slightly better in activity on Monday, according to sources.

"Not a bad start" to the week, one trader said. "Volume's down a little."

Overall investment-grade Trace volume hit about $8 billion for the day, up 7% from Friday, according to a market source.

The Markit CDX Series 14 North American investment-grade index was unchanged a second day from the previous end-of-week spread of 109 bps, according to Markit Group Ltd.

U.S. Treasuries rose, sending yields down on a strong showing for the government's first auction.

The yield on the benchmark 10-year note fell 1 bp to 2.6%. The yield on the 30-year bond was unchanged at 3.66%.

San Diego G&E bonds

San Diego Gas & Electric sold $500 million of 4.5% 30-year first mortgage bonds, series III, (Aa3/A+/AA) at Treasuries plus 88 bps, an informed market source said.

The bonds priced tighter than talk in the 90 bps area, the source said. There was about $2 billion or more on the books by late morning.

Bookrunners were Bank of America Merrill Lynch, BNP Paribas Securities, Credit Agricole CB Securities and Morgan Stanley & Co. Inc.

Proceeds are partially going to a general treasury fund and being used for general working capital purposes. They will also be used to support the electric and natural gas procurement programs, replenish amounts expended and to be expended for the expansion of a utility plant and to repay commercial paper bearing interest rates of less than 1%.

The utility subsidiary of Sempra Energy is based in San Diego.

Norfolk Southern reopens 100-years

Norfolk Southern reopened its rare issue of 6% notes due 2105 late in the day to add $250 million, a source away from the deal said.

The size was announced in the early afternoon at a minimum of $100 million and upsized at the launch.

The notes (Baa1/BBB+) priced to yield 5.95%. A spread was not available from the bookrunner at press time.

Total issuance is $550 million, including $300 million of notes issued on March 11, 2005 at a spread of 137 bps over Treasuries.

Goldman Sachs & Co. Inc. was bookrunner.

Proceeds are being used for general corporate purposes.

The freight railroad operator is based in Norfolk, Va.

Interstate Power's $200 million

Interstate Power & Light sold $200 million of 3.65%10-year senior unsecured debentures (A3/BBB+) to yield 105 bps over Treasuries, a source who worked on the deal said.

This was at the tight end of guidance in the 105 bps to 110 bps range.

Bank of America Merrill Lynch and Wells Fargo Securities ran the books.

Proceeds will be used to invest in short-term assets and fund the early redemption of $200 million of 6.75% senior debentures due March 15, 2011.

The utility subsidiary of Alliant Energy Corp. is based in Cedar Rapids, Iowa.

Kimco upsizes preferreds

Real estate investment trust Kimco Realty sold an upsized $175 million offering of 7 million shares of 6.9% perpetual class H cumulative redeemable preferred stock (Baa2/BBB-/BBB-) at par of $25, a source close to the sale said.

Bank of America Merrill Lynch, Morgan Stanley & Co. Inc., UBS Investment Bank and Wells Fargo Securities LLC handled the sale.

Proceeds are being used to repay mortgage loans in the amount of $150.1 million with interest rates of 6.75% to 7.87% and maturities of May 2011 to April 2013 and for general corporate purposes.

The operator of neighborhood and community shopping centers is based in New Hyde Park, N.Y.

San Diego firms, industrials tighten

San Diego Gas & Electric's new deal was stronger in the secondary market after pricing earlier at Treasuries plus 88 bps, according to traders.

"Tightened 1 basis point," a trader said. "They priced it at perfection."

The 4.5% series III first mortgage bonds due 2040 continued to firm late in the day.

Another trader saw the bonds tighter near the market close at 90 bps bid, 86 bps offered.

In other industrial deals, Interstate Power & Light sold $200 million of 3.65% debentures due 2020 on Monday. The offering, likely because of its size, was not seen in secondary trading, according to sources.

Overall, the industrial sector was "marginally tighter" in secondary trading, according to one source.

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