Citi, PacifiCorp become first issuers of 2012; week to see more; secondary active; banks firm

By Andrea Heisinger and Cristal Cody

New York, Jan. 3 - PacifiCorp and Citigroup Inc. priced debt on Tuesday as other high-grade issuers started off 2012 by feeling out market conditions and preparing to sell bonds in coming days or weeks.

The electric utility priced $650 million of first-mortgage bonds with 10- and-30-year maturities. It was the company's first bond sale since May of 2011.

Citigroup started off the year with a $2.5 billion sale of five-year paper that priced below price guidance, but at a spread well above its previous sale of five-year notes that came at 200 bps over Treasuries.

"That was pretty crazy," a source said, referring to the large new issue premium Citi paid to bring its bond offering. "I had to repeat [the spread] to a couple of people because they didn't believe me."

Financial names have been paying between 40 bps and 50 bps new issue concession to price debt throughout the last couple of months in 2011 and are expected to do the same in the first part of 2012 or until there's some resolution to the euro zone debt crisis.

Both of Tuesday's deals paved the way for more bond sales on Wednesday and beyond as other potential issuers saw that they were successful.

"Hopefully the tone holds overnight," a syndicate source said, referring to the Dow ending on a positive note.

Secondary high-grade trading got off to a good start on the first day back after the holidays, according to traders.

"It started out a little bit slower, then things picked up," one trader said. "Seems relatively active for the first day back."

Overall trading volume was about $9 billion on Tuesday.

Initial trades were seen in PacifiCorp's new 30-year tranche soon after pricing, according to a trader.

No trading was seen late afternoon in Citigroup's new notes due 2016, but bank and financial paper traded overall 10 bps to 15 bps tighter.

"Definitely a positive day," a trader said.

Investment-grade bank and brokerage credit default swaps costs fell on Tuesday, indicating more investor confidence in the financial sector.

A trader said that bank paper CDS costs declined by 5 bps to 20 bps, and brokerage company paper CDS costs eased 10 bps to 20 bps.

Elsewhere in the secondary market, bonds in the telecommunications sector traded about 2 bps to 5 bps better, led by cable bonds, a source said.

Time Warner Cable Inc.'s 4% notes due 2021 and the 5% notes due 2021 from DirecTV Holdings LLC and DirecTV Financing Co., Inc. both firmed about 5 bps.

"Time Warner Cable and DirecTV are the strongest out of the cable sector," the trader said.

Time Warner Cable's notes are trading about 25 bps tighter since they priced in September.

The Markit CDX Series 17 North American investment-grade index ended the first session of the year at a spread of 118 bps.

Treasuries fell on the longer end of the curve. The 10-year note yield closed at 1.95% from 1.87% on Friday. The 30-year bond yield climbed 10 bps to 2.98%.

Citi's $2.5 billion deal

Citigroup priced $2.5 billion of 4.45% five-year notes (A3/A-/A+) to yield Treasuries plus 360 bps, a source close to the trade said.

The debt sold tighter than guidance in the 375 bps area, the source said. There was more than $5 billion on the books by mid-morning and $6.5 billion by the time they closed.

The source said the spreads tightened down to between 300 to 310 bps, giving the deal a 50 basis point new issue premium.

Bookrunner was Citigroup Global Markets Inc.

Citi last sold 3.953% five-year debt at 200 bps over Treasuries in a $1.875 billion sale on June 8, 2011.

The financial services company is based in New York City.

PacifiCorp offers two notes

PacifiCorp sold $650 million of first mortgage bonds (A2/A/A-) in two parts, an informed source said.

The $350 million of 2.95% 10-year bonds were priced at a spread of Treasuries plus 100 bps. The debt priced in line with guidance in the 100 bps area.

A second tranche was $300 million of 4.1% 30-year bonds priced at 115 bps over Treasuries. The paper was sold at the tight end of talk in the 115 to 117 bps range.

Bookrunners were J.P. Morgan Securities LLC, Mitsubishi UFJ Securities (USA) Inc., RBS Securities Inc. and Wells Fargo Securities LLC.

Proceeds are being used to repay short-term debt, fund capital expenditures and for general corporate purposes, including tax-exempt bond redemption.

PacifiCorp last priced bonds in a $400 million sale of 3.95% 10-year mortgage bonds at 73 bps over Treasuries on May 9, 2011.

In the secondary market, PacifiCorp's 30-year bonds traded at 115 bps bid, 110 bps offered, a trader said.

The electric subsidiary of MidAmerican Holdings Co. is based in Portland, Ore.

Time Warner Cable better

In secondary trading, the 4% notes due 2021 (Baa2/BBB/BBB) that Time Warner Cable priced on Sept. 7 traded in 5 bps on Tuesday to 185 bps bid, 175 bps offered, a trader said.

The notes have come in about 25 bps since issuance. The 10-year notes priced at a spread of Treasuries plus 210 bps.

The entertainment company is based in New York City.

DirecTV firms

DirecTV's 5% notes due 2021 traded about 5 bps tighter on Tuesday, going out at 215 bps bid, 205 bps offered, a trader said.

The company sold the notes (Baa2/BBB/BBB-) at 155 bps over Treasuries on March 7.

The satellite TV company is based in El Segundo, Calif.

Paul Deckelman contributed to this review

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