Upsized International Paper prices, tightens; Otter awaited, more deals seen; Cisco again busy

By Paul Deckelman and Sheri Kasprzak

New York, Nov. 30 - The high-grade corporate market got back to work Monday after a Thanksgiving holiday break which worked out to a four-day hiatus for many market participants, ending off a very busy November with an upsized $750 million offering of 30-year bonds from International Paper Co.

Those new bonds were seen having tightened by several basis points from their initial spread when they were freed for secondary dealings.

Traders meantime expected the new-deal pace to pick up, with more upcoming pricings expected to be announced as issuers take advantage of unusually low and steady interest rates.

One other deal which did surface during the day and which could appear as early as Tuesday was for Fargo, N.D.-diversified industrial company Otter Tail Corp., which was shopping around a split-rated (Baa3/BB+/BBB) issue of seven-year notes.

Among established issues in the secondary arena on Monday, a market source said the CDX Series 13 North American high-grade index was unchanged at a mid bid-asked spread level of 106 bps.

Advancing issues topped decliners for a fourth straight day, holding an 11-to-8 advantage.

Spreads in general were seen mostly steady, in line with stable Treasury yields; for instance, the yield on the benchmark 10-year note was unchanged Monday, at 3.20%.

Overall market activity, reflected in dollar-volume totals, was a massive 14 times Friday's sleepy post-holiday pace.

Once again, there was ample trading in Cisco Systems Inc. bonds which priced earlier in the month, with the San Jose, Calif.-based networking systems company's 10-year and 30 year issues prominent in the Most Actives list.

More new issues expected

Although Monday saw only a modest number of pricings, more are anticipated in upcoming sessions.

"The calendar is decent," said one market source reached Monday afternoon.

"We're definitely back to work. It's been slow in general, but I think we're back to about the same level we were before the holiday."

International Paper upsizes

On Monday, International Paper priced $750 million in 30-year notes. The deal was upsized from $500 million.

The 7.3% notes were priced at 99.741 to yield 7.322%. The spread came in at 312.5 basis points over Treasuries.

Bank of America Merrill Lynch and Deutsche Bank were the joint bookrunners for the off-the-shelf notes (Baa3/BBB).

Proceeds will be used to make repayments of term loan borrowings, as well as to pay other debt securities.

Headquartered in Memphis, Tenn., International Paper is a paper manufacturing and distributing company.

Otter Tail deal planned

Looking ahead, Otter Tail Corp. announced plans to price $100 million in senior unsecured notes.

The seven-year notes will be sold off of the company's shelf registration.

"My understanding is that they're checking market conditions and will price when they feel they can get the best rate," said one market insider familiar with the deal.

"I haven't heard of a specific date for the sale yet."

Bank of America Merrill Lynch and J.P. Morgan Securities Inc. are the joint bookrunners. Proceeds will be used to repay a revolving credit facility. The remainder will be used for general corporate purposes.

Otter Tail Corp., based in Fargo, N.D., offers electric utility, manufacturing, health services, food ingredient processing and infrastructure businesses.

A trader said that Otter Tail's $100 million of seven-year senior notes had been expected in some quarters to price Monday or Tuesday, but proved to be a no-show on Monday, setting the stage for a Tuesday pricing.

International Paper tightens up

When the new International Paper 7.30% bonds due 2039 were freed for secondary dealings, a trader saw the new notes tightening by several basis points to 307 bps bid, 305 bps offered, from the 312.5 bps over spread versus comparable Treasury issues at which the company had priced its issue earlier in the session.

Another trader said that the bonds had gotten as tight as 306 bps bid, 304 bps offered - although the offer level seemed to have moved up to 305 bps late in the day.

New deals expected to pick up

The trader said "there were some [people] thinking that there might be more new issues than there were today, so people are kind of looking forward to see if there are any [Tuesday]," noting also that the calendar changes to a new month - the final period of the year, which might bring some participants back to the market who had been sitting things out over the previous several sessions.

The trader said that "with rates lower, Treasuries rallied again; [yields] keep going lower and lower. I'd be surprised if there weren't some issuers coming in to take advantage of it.

"Normally I would expect it to be very quiet for the rest of the year," as investors lock in the gains they've notched in the corporate bond market and, especially, its high yield cousin, "but with rates being where they are, I think we may get some surprises, as they take advantage of these rates."

Cisco still the secondary star

For yet another day, Cisco Systems' recently priced bonds continued to pace the established issues.

The San Jose, Calif.-based networking systems operator's $2 billion of 5.5% bonds due 2040 were again the most active issue in the high-grade precincts, with over $100 million of that paper changing hands. The bonds remained in the low 130s, consistent with recent levels around the 130 bps spread over comparable Treasury issues at which those bonds had priced on Nov. 9 as part of a $5 billion three-tranche deal.

The company's 4.45% notes due 2020, some $2.5 billion of which had priced Nov. 9 at 100 bps over, were also high on the Most Actives list with $54.5 million traded.

A market source at another desk meantime said that among the more established Cisco bonds, its 4.95% notes due 2019 were trading at 93 bps over, versus its 89 bps level at the end of last week.

Its 5.90% bonds due 2039 were about unchanged at 137 bps over on Monday.

Kellogg doing GRRRRRRREAT

Also very active was the recently priced Kellogg Co. 4.15% notes due 2019, $500 million of which had priced at 85 bps over on Nov. 16.

The iconic Battle Creek, Mich.-based cereal manufacturer's issue was the second-busiest on Monday, with $58 million traded, as it tightened to 78 bps over.

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