SLM, Rockies Express sell split-rated notes, Narragansett Electric prices; banks trade hot

By Andrea Heisinger

New York, March 17 - Two split-rated sales from SLM Corp. and Rockies Express Pipeline LLC took up most of the action in the high-grade bond market on Wednesday, along with a deal from Narragansett Electric Co.

The sluggish week of issuance continued, with little in new deals expected for the remainder of the week.

SLM was the first to price with its $1.5 billion sale of split-rated 10-year notes that were sold off the high-grade desk.

Rhode Island-based Narragansett Electric offered $550 million of notes in two tranches. It was sold via Rule 144A, as all of the day's offerings were.

The last offering to be sold was the Rockies Express paper, which priced in three tranches. The issue totaled $1.7 billion, and although it was split-rated, there was more interest on the high-grade side.

The deal was "hardly seen" in the high-yield market.

There was interest in the SLM deal in both the high-grade and high-yield secondary markets. The bonds due 2020 improved and then gave back some of the gains, fluctuating after they were priced.

New notes from Narragansett Electric and Rockies Express Pipeline were unchanged to better once being freed to trade.

Volume was seen as "pretty good" by one trader, despite a low volume of new deals.

Bank bonds continued to attract interest in the secondary, with spreads improving and names like Bank of America Corp. and Goldman Sachs Group Inc. having some of the most-traded notes by volume. Corporate bonds were somewhat quieter.

SLM prices split-rated 10-year

SLM - also known as student loan lender Sallie Mae - priced a benchmark $1.5 billion of 8% split-rated 10-year senior notes (Ba1/BBB-/BBB-) to yield 8.25%, a market source said. They have a spread of Treasuries plus 462.1 bps.

It was the lender's first bond sale since early 2008.

J.P. Morgan Securities Inc., Bank of America Merrill Lynch and Barclays Capital were the bookrunners.

Proceeds are being used for general corporate purposes.

The issuer is based in Reston, Va.

Narragansett Electric sells two tranches

Narragansett Electric stealthily sold $550 million of notes (A3/A-) in two tranches late in the day as much of the focus was on the SLM deal, a source away from the sale said.

The $250 million of 4.534% 10-year notes sold at a spread of Treasuries plus 90 bps.

A $300 million tranche of 5.638% 30-year bonds priced to yield 108 bps over Treasuries.

The tranches were priced via Rule 144A.

Bookrunners were JPMorgan, National Australia Bank and RBS Securities Inc.

The subsidiary of National Grid is based in Providence, R.I.

Rockies Express prices $1.7 billion

Rockies Express Pipeline sold $1.7 billion of split-rated notes (Ba1/BBB/BBB) in three tranches late in the day, an informed source said. The notes were priced a little before 5 p.m. ET.

The $450 million of 3.9% five-year notes were sold at a Treasuries plus 155 bps spread.

A $750 million tranche of 5.625% 10-year notes was priced to yield Treasuries plus 200 bps.

The $500 million of 6.875% 30-year notes priced at a spread of 232 bps over Treasuries.

The notes were priced via Rule 144A.

Bank of America Merrill Lynch, JPMorgan and Morgan Stanley & Co. Inc. ran the books.

The natural gas pipeline that is a partnership among several companies is based in Houston.

High-yielding bonds see demand

Bonds skirting the investment-grade ratings thresholds have been prevalent in the market for much of the week, and a source said it's because those buying the bonds are looking for "good, high-yielding paper."

"They want a good product," he added.

At least one of the day's offerings met the criteria, with SLM yielding 8.25%.

Other than the split-rated deals, there wasn't much action in the primary market, leaving many syndicate desks empty early.

"It was pretty dead out there," a source said late in the day. "I'd like to say it's going to change [tomorrow], but probably not."

There was no word on when planned bond issues from Hartford Financial Services Group Inc. might be priced to help pay back its financial bailout money to the government. The insurance and financial services company announced late Tuesday that it intended to repurchase preferred shares from the government and would issue additional bonds to pre-fund coming maturities.

"I haven't heard anything," a source said of the timing.

The primary market's tone was termed "fine" at the end of the day by a source who said that it didn't seem to be the reason for a lack of deals.

"I don't know what's going, honestly," he said. "I would have thought we would be a little busier this week."

SLM bond moves up

A new 8% note due in 2020 from SLM priced in time to hit the secondary market and was seen making gains from its price of 98.318. It was quoted by a trader at 98.5 bid, 99.00 offered.

They were later seen by another trader at 98.75 offered and then at an offer of 99.7.

There was about $2.5 billion in orders for the bonds, a secondary source said.

Rockies Express bonds gain

Three new notes from Rockies Express Pipeline were mostly improved soon after pricing, with the shorter bonds moving more than the longer ones, traders said.

The 6.875% bond due 2040 was sold at 232 bps over Treasuries and was at first quoted as mostly unchanged at a 232 bps bid, 222 bps offer. Later they were quoted at 229 bps bid, 215 bps offered and 218 bps offered.

The 5.625% note due 2020 was quoted first at 195 bps bid, 190 bps offered after being sold at 200 bps over Treasuries. Later they were offered at an improved 186 bps offered.

A 3.95% five-year note priced at 155 bps over Treasuries and was quoted at 140 bps offered, with no bid. It later was not seen trading.

The 10-year note of the issue was sought after in trading. A source said that he "had flippers waiting for the 10-year to price."

Narragansett Electric gains

The new deal from Narragansett Electric mostly disappeared once hitting the secondary market, with some traders not seeing it trading.

Soon after it priced at 90 bps over Treasuries, the 4.534% note due 2020 was not seen trading and later was quoted at an offer of 85 bps.

Small moves were made by the 5.638% bond due 2040, which priced at Treasuries plus 108 bps. They were quoted by one trader at 104 bps offered and later by another source at 108 bps bid, 105 bps offered.

First Niagara bonds trade tighter

A new bond sold on Tuesday by First Niagara Financial Group, Inc. was quoted as making a big move tighter by early on Wednesday, a trader said.

The 6.75% bond due 2020 priced at 306.7 bps over Treasuries and was being offered at 265 bps, with no bid. The notes were not seen trading by late on Tuesday.

Banks remain hot in trading

Bonds from large bank and financial names were once again trading at high volume as they have been for the first half of the week.

Two notes from Bank of America topped the most-traded list by early afternoon. These were the bank's 4.5% notes due 2015 and 7.625% notes due 2019.

This activity "may have had something to do with the Dodd bill," a trader in the financial sector said. He was referring to a financial reform bill making its way through the Senate that is sponsored by Sen. Chris Dodd.

Financial bonds reacted positively on Tuesday as the contents of the bill were released, and deemed not to be too extreme by those on Wall Street.

A 5.375% bond due in 2020 from Goldman Sachs was also doing well with investors and was quoted at 166 bps.

Citigroup Inc. and Morgan Stanley were other large financials with high-volume bond trades.

A 4.45% bond due 2020, which was part of a recent three-tranche deal from Medtronic Inc., was trading at high volume in the secondary.

Bank bonds were "still hot," a source said. They were about 5 bps tighter by the end of the day.

Credit-default swaps were between 2 and 6 bps better for bank names, while brokerages moved 2 to 4 bps tighter.

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