Split-rated International Lease, American Tower deals price; secondary spreads move out 5 bps

By Andrea Heisinger and Cristal Cody

New York, Aug. 11 - Issuance quieted in the high-grade market on Wednesday with an expected split-rated deal from International Lease Finance Corp. selling early in the day and American Tower Corp. also pricing a split-rated bond.

The International Lease deal was upsized to $3.9 billion right off the bat in the morning, with a fourth tranche of $500 million of seven-year junk-rated senior unsecured notes also added. The sale had been announced on Monday at $2.5 billion in three tranches.

American Tower priced its upsized $700 million of 10-year notes later in the day. The notes were priced in line with guidance, with the size increased from $500 million.

Both deals priced tight to talk in a market that had a more hesitant tone than in the past couple of weeks of non-stop sales.

News out of the Federal Reserve meeting the previous day on the buyback of long-term Treasury bonds may have caused some issuers to pull back, a source said.

"I think some people got in yesterday because of this," he said. "I wouldn't say it was bad this morning - just a touch heavier."

Trading in high-grade corporates in the secondary market was "not the best," one trader said.

"Spreads are about 5 weaker."

The CDX Series 14 North American investment-grade index moved out 4 bps to a spread of 109 bps, according to a market source.

Anadarko Petroleum Corp.'s new notes have widened more than 30 basis points since Monday, while no secondary trading activity was seen late in the day on the new notes from International Lease Finance and American Tower, sources said.

"Not seeing any markets on them yet," one source said.

Overall investment-grade Trace volume slipped 22% to almost $11 billion, according to a source.

The day was "quiet in corp land for me," a trader said. "The backup in T-yields is not helping."

Treasuries rose on Wednesday and benchmark yields fell to the lowest this year a day after the Federal Reserve's announcement that it will buy two- to 10-year notes.

The yield on the 10-year note fell to 2.68% from 2.76%.

The yield on the 30-year bond dropped 8 bps to 3.92%.

Late in the day, the investment-grade market tone was still weaker.

"Spreads a bit wider," a trader said.

ILFC does mega deal

International Lease Finance sold an upsized $3.9 billion of split-rated senior secured first lien notes (Ba3/BBB-/BBB-) in three tranches, a market source said Wednesday, with a tranche of senior unsecured notes later added to the sale.

The deal was announced on Monday at $2.5 billion in three tranches, with the size of all of the tranches growing considerably. The fourth tranche of junk-rated notes was also tacked on.

The upsizing was not completely out of left field, a source away from the deal said.

"I think they said they were looking at about $4 billion," he said. "I'm sure there was demand."

The book for this added tranche was about $2 billion in the morning after it was announced, a source on the junk side said.

The aircraft leasing company last sold notes in a two-tranche $750 million add on deal that was junk-rated.

A $1.35 billion tranche of 6.5% four-year notes priced to yield 6.5%. This was at the tight end of guidance in the 6.625% yield area.

The second tranche was $1.275 billion of 6.75% six-year notes priced at a yield of 6.75%. The notes were sold at the tight end of talk in the 6.875% area.

A $1.275 tranche of 7.125% eight-year notes sold a yield of 7.125%. It priced at the tight end of guidance in the 7.25% area.

A fourth tranche of $500 million of 8.875% seven-year senior unsecured notes (B1/BB+/BB) was added and priced to yield 9%.

All of the notes but the seven-year tranche were sold under Rule 144A with contingent registration rights.

Bank of America Merrill Lynch, Citigroup Global Markets and J.P. Morgan Securities were bookrunners.

Proceeds are being used to refinance a portion of the outstanding $3.9 billion in AIG Funding, Inc. loans and for general corporate purposes.

The issuer is based in Los Angeles.

Split-rated deals rule

There were no straight high-grade bonds sold for the day - only two deals that were split-rated.

Despite this, there was high demand for the huge deal from International Lease Finance that was priced off the high-grade desk despite being priced like a junk bond.

The massive $4.4 billion sale took much of the day to be sold and was the focus of many of the syndicate desks as they were involved in some capacity.

"It was hard to coordinate," one source said.

The high-grade bond pipeline cooled slightly after being red hot for much of the past couple of weeks.

"There's volume," a syndicate source said at the end of the day. "I think headlines might have factored in."

It was unclear at the end of the day if there was anything expected to price on Thursday or Friday. The next couple of days may be a cooling off period, the syndicate source said.

"If we're not busy again, it should pick up next week," he said.

American Tower 10-years

American Tower Corp. sold an upsized $700 million of 5.05% 10-year split-rated senior unsecured notes (Baa3/BB+/BBB-) to yield 237.5 bps over Treasuries, a source close to the sale said.

The size was initially $500 million, and the notes were priced in line with guidance.

Citigroup Global Markets, Credit Suisse Securities, J.P. Morgan Securities and RBS Securities ran the books.

Proceeds will be used to finance the acquisition of Essar Telecom Infrastructure Private Ltd. and other recent and potential acquisitions, including refinancing a portion of borrowings under a revolving credit facility. Any remainder will be used for general corporate purposes.

The broadcast tower operator is based in Boston.

Anadarko moves out

Anadarko Petroleum's new notes sold earlier in the week continued to move out in secondary trading on Wednesday, a source said.

The 6.375% notes (Ba1/BBB-/BBB-) due 2017 priced on Monday at a spread of Treasuries plus 415.6 bps. In trading on Wednesday, the notes were quoted wider at 449 bps.

The notes have been widening on aggressive pricing, a trader said.

The oil and gas exploration and production company is based in The Woodlands, Texas.

Bank/Broker CDS costs widen out

In the credit-default swaps market on Wednesday, a trader saw the cost of protecting holders of bonds issued by major banks against an event of default rise by between 8 basis points and 12 bps, depending on the name, reflecting lessened investor confidence in the sector. He saw the cost of CDS contracts protecting holders of major brokerage house paper anywhere from 8 bps to 10 bps higher on the day.

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

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