IBM, Paccar, Imperial Tobacco tap market as tone improves; recent deals trade mostly tighter

By Aleesia Forni and Andrea Heisinger

New York, Feb. 5 - The investment-grade bond market was active again on Tuesday as sales from International Business Machines Corp., Imperial Tobacco Group plc and Paccar Financial Corp. were priced.

IBM sold $2 billion of notes with both a fixed-rate coupon and floating-rate coupon in maturities of 2015 and 2018.

U.K.-based Imperial Tobacco was in the market with a $2.25 billion trade of notes in two parts. The sale included maturities of 2018 and 2023 and was the first dollar-denominated offering from the company. Demand was roughly $7 billion, a market source said.

Paccar Financial sold $500 million split equally between three-year notes and three-year floaters.

There was a sale of Citigroup Inc. subordinated notes due 2022 by the Department of the Treasury. The trade had gone overnight from Monday.

A $175 million issue of $25-par preferred shares was sold by Selective Insurance Group Inc.

The day saw more issuance than Monday, when only a couple of sovereign deals were priced.

The tone rebounded slightly following a drop to start the week on renewed fears about the euro zone.

A source said the day was "pretty solid" with corporate names returning to the market after several days of being dominated by foreign and sovereign issuers due to earnings blackout.

Some companies have scrambled to tap the market because of a shift in Treasury yields.

"We've been watching that for a couple of weeks," the source said. "We should be active again tomorrow."

The secondary market saw IBM's new deal trade 3 basis points better near the end of the day.

A source also quoted Imperial Tobacco's notes flat to tighter in the gray market.

Meanwhile, the 1.2% notes due 2016 from Carnival Corp. were trading flat on Tuesday, according to a trader.

Investment-grade bank and brokerage credit default swap costs declined on Tuesday.

Bank of America's CDS costs firmed 3 bps to 113 bps bid, 117 bps offered. Citi's CDS costs were 3 bps tighter at 110 bps bid, 115 bps offered. JPMorgan's CDS costs firmed 1 bp to 82 bps bid, 86 bps offered. Wells Fargo's CDS costs also were unchanged at 73 bps bid, 77 bps offered.

Merrill Lynch's CDS costs were 2 bps tighter at 110 bps bid, 120 bps offered. Morgan Stanley's CDS costs also declined 2 bps to 145 bps bid, 150 bps offered. Goldman Sachs' CDS costs firmed 2 bps to 135 bps bid, 139 bps offered.

Imperial's first dollar bonds

Imperial Tobacco Group sold $2.25 billion of notes (Baa3/BBB/) in two tranches, an informed source said.

The size was in line with the "roughly $2 billion" talked at midday.

The sale included $1.25 billion of 2.05% five-year notes sold at a spread of Treasuries plus 120 bps. Pricing was at the low end of talk in the 120 bps to 125 bps range.

The second part was $1 billion of 3.5% 10-year notes priced at 150 bps over Treasuries. There was talk in the range of 150 bps to 155 bps, with pricing at the tight end.

The notes due 2023 were quoted 2 bps better at 148 bps bid in the gray market on Tuesday, while the notes due 2018 were seen flat at 120 bps offered.

Pricing was done under Rule 144A and Regulation S.

The bookrunners were Bank of America Merrill Lynch, Barclays, Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC.

Proceeds are being used for general corporate purposes including working capital, share repurchases and refinancing and to repay or repurchase debt.

The maker of cigarettes and tobacco products is based in Bristol, England.

IBM sells $2 billion

International Business Machines priced $2 billion of notes (Aa3/AA-/A+) in two tranches, a market source said.

There was $1 billion of two-year floating-rate notes sold at par to yield Libor minus 2 bps.

A $1 billion tranche of 1.25% five-year notes priced at a spread of Treasuries plus 47 bps. The notes were sold at the tight end of talk in the 50 bps area, plus or minus 3 bps.

One market source quoted the notes 3 bps better at 44 bps bid, 47 bps offered near the end of the session.

The bookrunners were Barclays, HSBC Securities (USA) Inc., Mizuho Securities USA Inc. and RBC Capital Markets LLC.

Proceeds are being used for general corporate purposes.

IBM last priced debt in the U.S. market in a $1 billion sale of 10-year notes on July 25, 2012.

The information technology and computer company is based in Armonk, N.Y.

Citi's subordinated notes

The Treasury Department sold $894 million of Citigroup 4.05% subordinated notes (Baa3/BBB+/BBB+) due 2022 at par to yield 4.05%, a market source said.

The notes were priced at a spread of Treasuries plus 203.6 bps.

The size had been announced early on Monday at about $900 million, the source said.

Citigroup Global Markets Inc. was global coordinator. Active bookrunners were Deutsche Bank Securities Inc., Goldman Sachs & Co., J.P. Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities LLC.

The notes were issued to the Treasury on Monday in exchange for Citi securities that had been held by the Federal Deposit Insurance Corp., according to a press release. Those original Citi securities were issued to the FDIC in 2009 under the Troubled Asset Relief Program. The FDIC transferred those securities to the Treasury on Dec. 28. After this transaction has closed, the Treasury will not hold any Citi securities.

The financial services company is based in New York.

Paccar prices two tranches

Paccar Financial was in the market with a $500 million trade of three-year notes (A1/A+/) in two parts, according to FWP filings with the Securities and Exchange Commission.

A $250 million tranche of three-year floating-rate notes priced at par to yield Libor plus 27 bps.

The second part was $250 million of 0.8% three-year bonds sold a spread of Treasuries plus 45 bps.

Bank of America Merrill Lynch, Goldman Sachs and JPMorgan were the bookrunners.

Paccar last sold bonds in the U.S. market in a $250 million offering of 0.7% three-year notes priced at 38 basis points over Treasuries on Nov. 8.

The provider of retail and commercial truck financing for Paccar Inc. is based in Bellevue, Wash.

Selective's $25-par notes

Selective Insurance Group issued $175 million of 5.875% $25-par senior notes due 2043 (expected ratings: Baa2/BBB/BBB+), the company said in a prospectus filed with the SEC.

Price talk was around 5.875%, according to a trader. The size was increased from a minimum of $100 million.

A trader saw the issue offered at less 30 cents in the midday gray market.

"I haven't heard any discussion on whether they're going to tweak pricing or not," he said. "But it seems fairly valued. It should price right around where they've said."

Wells Fargo and Bank of America Merrill Lynch are the joint bookrunners.

The company will apply to list the notes on the New York Stock Exchange under the ticker symbol "SGZA."

Proceeds will be used to redeem all $100 million of the company's 7.5% junior subordinated notes due 2066 at par. Any remaining funds will be used for general corporate purposes, including capital contributions to insurance subsidiaries.

Selective Insurance is a Branchville, N.J.-based insurance company.

Carnival notes flat

Carnival's 1.2% notes due 2016 were quoted at 73 bps bid, 65 bps offered at midday, unchanged from levels seen on Monday.

The notes were sold at 80 bps over Treasuries on Thursday.

Carnival is a Miami-based unit of London-based cruise operator Carnival plc.

Stephanie N. Rotondo contributed to this review

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