Morning Commentary: High-grade supply revs up; Coke, Pepsi, Southwest, others in queue

By Cristal Cody

Tupelo, Miss., April 29 – Heavy investment-grade supply is expected over Wednesday’s session with numerous companies offering bonds.

Two soft drink manufacturers are returning to the primary market after pricing bonds in March.

Coca-Cola Co., which sold $5 billion of senior notes (A1/A+) in five tranches on March 20, is offering five tranches in the new offering on Wednesday.

Coca-Cola’s deal includes seven-, 10-, 20-, 30- and 40-year tranches.

PepsiCo Inc., which priced $6.5 billion of senior notes (A1/A) in six tranches on March 17, is offering two tranches on Wednesday. A three-year issue is initially talked to price in the Treasuries plus 80 basis points area, and a 10-year tranche is talked at the 135 bps over Treasuries area.

Meanwhile, Philip Morris International Inc. expects to price three tranches of notes (A2/A/A) during the session. The deal includes three-year notes with initial price talk in the Treasuries plus 140 bps to 145 bps area, five-year notes talked at the 155 bps to 160 bps area and 10-year notes initially guided at the 185 bps to 190 bps over Treasuries area.

Co-issuers NXP BV and NXP Funding LLC are offering three tranches of senior notes (Baa3/BBB-/BBB-) that include one tranche of green bonds in a Rule 144A and Regulation S deal. Initial price talk on a five-year note is in the Treasuries plus 300 bps area, while a seven-year tranche is talked at the 325 bps spread area. The 10-year green bond is initially talked to price in the Treasuries plus 335 bps area.

Southwest Airlines Co. also is in the day’s deal pipeline with two tranches of notes (Baa1/BBB/BBB+) that include three-year notes talked at the 5.625% area and five-year notes guided at the 6.125% area.

Southwest Airlines is tapping the high-grade bond market a day after pricing $2 billion of five-year convertible notes and $1.99 billion of common stock.

A few issuers also are offering single tranche deals.

Initial price talk on a new 10-year note from ONE Gas, Inc. (A2/A) is in the Treasuries plus 187.5 bps area.

Consumers Energy Co. plans to price 40-year first mortgage bonds (Aa3/A/A+) that are talked to print in the Treasuries plus 165 bps area.

In addition, Canadian National Railway Co. is offering $500 million of 30-year notes (A2/A) with initial price talk in the Treasuries plus 155 bps area.

Investment-grade supply so far totals more than $30 billion from issuance over the first two sessions.

About $40 billion to $50 billion of volume is expected by market sources this week.

The Federal Reserve concludes its two-day monetary policy meeting on Wednesday. No additional policy changes are expected by market participants.

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