High-grade supply quiet as credit spreads widen; Dow Chemical firms; JPMorgan eases

By Cristal Cody

Tupelo, Miss., Dec. 4 – High-grade corporate bond issuers stayed out of the primary market on Tuesday as credit spreads widened and optimism on Monday gave way to trade concerns.

The Markit CDX North American Investment Grade 31 index widened about 3 basis points to a spread of 78 bps.

Stocks slid after rallying on Monday with the Dow Jones industrial average down 800 points, or 3.1%, and the other indices off more than 3%.

The bond markets, along with stock markets and the U.S. government, will be closed on Wednesday as part of a national day of mourning for former U.S. president George H.W. Bush.

High-grade deal volume was expected to reach the $15 billion to $20 billion area this week but may not hit those totals with the mid-week market closure.

More than $4 billion of investment-grade bonds priced on Monday.

ING Groep NV (Baa1/A-/A+) was expected to price an offering of fixed-rate subordinated resettable notes due Dec. 12, 2033, but the deal was postponed, a source said.

In the secondary market, Dow Chemical Co.’s 4.8% senior notes due Nov. 30, 2028 that priced in a $2 billion three-tranche offering last week tightened about 4 bps.

Home Depot Inc.’s senior notes (A2/A) traded better than where the notes came as part of a $3.5 billion four-part offering a week ago.

JPMorgan Chase & Co.’s 4.452% fixed-to-floating rate notes due Dec. 5, 2029 that priced last week as part of a $5 billion two-tranche deal traded about 4 bps softer than issuance.

In other secondary trading, Pacific Gas & Electric Co.’s senior notes (Baa2/BBB-/BBB-) were mixed after weakening in November when the company’s power lines were linked to the California Camp Fire and its bonds downgraded, a source said.

PG&E “continues to struggle with potential wildfire liabilities” and a California lawmaker has discussed the possibility of a break-up of the utility, Covenant Review, a credit research firm, said in a report on Tuesday.

The company’s bonds do not have an asset sales covenant, restricted payments covenant or other independent restrictions on asset dispositions or transfers beyond the mergers covenant, the report said.

The mergers covenant limits transfers of all or substantially all principal property assets, unless the utility bonds travel with those assets.

“PG&E (or California) would have a great degree of flexibility in orchestrating a break-up of the utility,” the report said. “It’s not exactly clear along what lines a break-up would take place, but in any contemplated transaction, the mergers covenant’s restriction on transferring all or substantially all of the principal property assets will be a principal concern.”

PG&E has a number of bonds outstanding issued under April 22, 2005, Feb. 14, 2014, Nov. 29, 2017 and Aug. 6, 2018 indentures.

The San Francisco electric and natural gas utility’s 4.25% notes due Aug. 6, 2023 traded in the 93.63 area late afternoon, a market source said.

The notes have improved since plunging to the 89 area from 99.51 on Nov. 15.

Pacific Gas & Electric sold $500 million of the notes on Aug. 2 at 99.76 to yield 4.3% and a spread of 145 bps over Treasuries.

Dow Chemical firms

Dow Chemical’s 4.8% notes due Nov. 30, 2028 traded on Tuesday about 4 bps better at 173 bps bid, according to a market source.

The company sold $600 million of the notes (Baa2/BBB/BBB+) on Wednesday at a Treasuries plus 175 bps spread.

On Tuesday, Dow Chemical announced it priced its tender offer for $2.11 billion of outstanding 8.55% notes due May 15, 2019.

Last month, Dow Chemical holding company DowDuPont Inc. priced a $12.7 billion eight-part offering of senior notes (Baa1/A-/BBB+) ahead of a spinoff of Dow Chemical and Corteva Inc. in 2019.

Dow Chemical is a specialty chemicals company based in Midland, Mich.

Home Depot strong

Home Depot’s 3.9% senior notes due 2028 (A2/A) traded on Tuesday at 83 bps bid, unchanged on the day but 10 bps better than issuance, according to a market source.

The notes priced in a $1 billion tranche on Nov. 27 at a spread of Treasuries plus 93 bps.

Home Depot is an Atlanta-based home improvement retailer.

JPMorgan paper soft

JPMorgan Chase’s 4.452% fixed-to-floating rate notes due Dec. 5, 2029 traded on Tuesday mostly flat at 144 bps bid, a market source said.

The company (A2/A-/AA-) sold $2.5 billion of the notes on Wednesday at a spread of Treasuries plus 140 bps.

The issue has a 4.452% coupon until Dec. 5, 2028 and then converts to a rate equal to Libor plus 133 bps.

JPMorgan Chase is a financial services company based in New York City.

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