PepsiCo, Lexmark, Kraft, Genworth, Baxter, HSBC, ArcelorMittal join new deal surge

By Andrea Heisinger and Paul Deckelman

Omaha, May 19 – A strong open to the week in the new issue market meant a Monday crammed with deals, including offerings from PepsiCo, Inc., Lexmark International, Inc., Kraft Foods Inc., Genworth Financial, Inc., Baxter International Inc., HSBC Holdings plc, Northwest Pipeline GP, Transcontinental Gas Pipeline Corp., ArcelorMittal SA, Connecticut Light and Power Co. and Public Service Co. of New Hampshire.

Issuance for the day was about $11 billion from 11 names.

Sources said this is a continuation of the trend of many issuers pricing smaller amounts, which is likely to continue in coming weeks.

In the investment-grade secondary market Monday, advancing issues led decliners by a margin of almost seven-to-six, while overall market activity, reflected in dollar volumes, fell by about 3% from Friday's pace. Spreads in general widened slightly as Treasury yields declined, with the yield on the benchmark 10-year note, for instance, decreasing by 2 basis points to 3.83%.

New or recently priced issues such as the Kraft Foods, PepsiCo and Starwood Hotels & Resorts Worldwide Inc. deals were seen mostly trading near the spreads at which they had been priced; a significant exception was the new Harley-Davidson Funding Corp. issue, which continued to trade fairly actively at considerably tighter levels.

PepsiCo brings $1.75 billion

PepsiCo contributed $1.75 billion to the day's total, pricing 5% 10-year senior notes at 99.486 to yield 5.066% with a spread of Treasuries plus 125 bps.

Merrill Lynch, Pierce, Fenner & Smith Inc., J.P. Morgan Securities Inc. and Morgan Stanley & Co., Inc. ran the books.

Lexmark at tight end

Lexmark priced $650 million of senior notes in two tranches.

The printer company priced $350 million of 5.9% five-year notes at 99.830 to yield 5.939% with a spread of Treasuries plus 285 bps.

The second tranche was $300 million of 6.65% 10-year notes at 99.73 to yield 6.687% with a spread of Treasuries plus 285 bps.

Both tranches priced on the tight end of guidance of in the 287.5 bps area.

J.P. Morgan and Citigroup Global Markets Inc. were bookrunners.

Kraft oversubscribed

Kraft priced $2 billion of senior unsecured notes in two tranches.

The $1.25 billion of 6.125% 10-year notes priced at 99.126 to yield 6.237% with a spread of Treasuries plus 240 bps.

The $750 million of 6.875% notes due 2039 priced at 98.677 to yield 6.978% with a spread of Treasuries plus 240 bps.

Both tranches came at the tight end of price talk of 240 to 245 bps, a source close to the deal said.

The deal was several times oversubscribed, the source said, with books for the 10-year notes at $3 billion and the 30-year notes at $1.75 billion.

Bookrunners were Credit Suisse Securities, Goldman Sachs & Co., HSBC Securities Inc., J.P. Morgan and UBS Investment Bank.

Genworth upsizes

Genworth Financial priced an upsized $600 million of 6.515% 10-year senior notes at par to yield 6.515% with a spread of Treasuries plus 265 bps.

The amount was increased from $500 million.

Deutsche Bank Securities Inc., Morgan Stanley and UBS were bookrunners.

Healthcare company Baxter priced $500 million 5.375% 10-year senior notes at 99.707 to yield 5.413% with a spread of Treasuries plus 158 bps.

Goldman Sachs and J.P. Morgan Securities ran the books.

HSBC brings subordinated notes

HSBC was one of the few financial names issuing Monday.

They priced $1.5 billion 6.8% 30-year global subordinated notes at 99.783 to yield 6.817% with a spread of Treasuries plus 225 bps.

Bookrunner was HSBC.

Two utilities price

Two of the smaller issues for the day came from utilities.

Connecticut Light and Power priced $300 million of 5.65% 10-year first and refunding mortgage bonds at 99.757 to yield 5.683% with a spread of Treasuries plus 180 bps.

They priced at the tight end of talk of 180 to 185 bps, a source said.

Barclays Capital Inc., Citigroup and Wachovia Capital Securities LLC ran the books.

Public Service Co. of New Hampshire priced $110 million of 6% first mortgage bonds at 99.762 to yield 6.033% with a spread of Treasuries plus 215 bps.

Barclays and BNY Capital Markets were bookrunners.

ArcelorMittal sells $3 billion

A handful of Monday's issuers priced under Rule 144A.

One of those was steel company ArcelorMittal, which priced $3 billion of senior unsecured notes in two tranches.

The $1.5 billion of 5.375% five-year notes priced at a spread of Treasuries plus 235 bps, while the $1.5 billion of 6.125% 10-year notes priced at Treasuries plus 235 bps.

Both tranches had price talk of 240 bps area, a source said.

Goldman Sachs, J.P. Morgan and HSBC were bookrunners.

Two subsidiaries of energy and communications company Williams priced Rule 144A issues.

Northwest Pipeline priced $250 million 6.05% 10-year senior notes at 99.733 to yield 6.085% with a spread of Treasuries plus 222 bps.

Transcontinental Gas Pipeline priced an identical issue of $250 million in 6.05% 10-year senior notes at 99.733 to yield 6.085% with a spread of Treasuries plus 222 bps.

Banc of America, J.P. Morgan and RBS Greenwich Capital were bookrunners for both issues.

More to come

Upcoming issues for at least two companies were also announced Monday.

PartnerRe Finance A LLC announced it will price 10-year senior notes, with proceeds being lent to its parent company Partner RE U.S. Holdings.

Credit Suisse and Wachovia are bookrunners for the issue that is expected to price Tuesday.

NYSE Euronext, Inc. announced an issue of senior unsecured notes via a 424B5 Securities and Exchange Commission filing.

Proceeds are to be used for general corporate purposes including repayment of existing debt.

Banc of America Securities, Citigroup and Merrill Lynch are bookrunners.

A $3 billion issue of three-year notes from European Investment Bank was announced Friday and is expected to price Tuesday, sources said.

A roadshow wraps up Tuesday for a dollar-denominated issue from OJSC Russian Agricultural Bank, with pricing expected afterward.

No Monday lull

A Monday lull that used to be commonplace is now a thing of the past as issuers take advantage of market conditions. This was in full effect Monday with the abundance of names wanting into the market.

"They were not the largest size, but there were a lot of deals," a source said.

The number of issues competing for investors' attention didn't seem to affect their pricing.

"Everything today went well," a market source said. "Everybody focuses on the stuff they want to focus on. All eyes today were on the primary market."

Tuesday was seen by a few traders as not being as busy, with each reporting they knew of a couple of potential issuers for the day.

"I think we'll definitely see a couple of deals," one trader said. "It seems like people are trying to get in ahead of Memorial Day. I can't imagine another day as busy as today."

Kraft slightly better

A trader saw new issues tending to not stray far from the levels at which they had priced earlier in the session.

For instance, he saw the new Kraft Foods 6.125% notes due 2018, which had priced at a spread over comparable Treasuries of 240 bps earlier in the session, trading "perhaps 3 [bps] tighter" at 237 bps over. He meantime saw no dealings in the company's 6.875% bonds due 2038, which also priced at 240 bps behind Treasuries.

He also saw PepsiCo's new 5% notes due 2018 trading at 131 bps bid, 126 bps offered, which he called "kind of unchanged" from the credit's 125 bps spread at pricing.

He saw no trading in some of the smaller new utility credits like Connecticut Power and Light's 5.65% first mortgage bonds due 2018, which had priced at 180 bps over, and Public Service Co. of New Hampshire, whose 6% first mortgage bonds due 2018 priced at 218 bps over.

Among recently priced issues, he saw Starwood Hotels' new 6.25% notes due 2013, which priced Friday at 300 bps off Treasuries, straddling that spread at 302 bps bid, 297 bps offered. He did not see any dealings in the company's new 6.75% notes due 2018, which priced Friday at 296.6 bps over. Another market source quoted the 5-years as having come in to 296 bps over.

The standout performer among the new bonds remained Harley-Davidson's new 6.80% notes due 2018, which priced Thursday at 300 bps over and then firmed smartly to 275 bps over in Friday's session. The bonds had given back a little of those gains Monday but remained well inside their issue spread, quoted at 278 bps over.

Among other recently priced issues, Philip Morris International Inc.'s 6 3/8% bonds due 2038, which priced at 177 bps over a week ago, were hanging in quoted at 181 bps on Monday. United Technologies Corp.'s 6.125% bonds due 2038, which also priced a week ago, at 153 bps over, were seen Monday at 150 bps.

Harsco Corp.'s 5.75% notes due 2018 were quoted at 191 bps over Monday, versus their 200 bps spread at pricing on May 12. Petro-Canada Ltd., whose 6.05% notes due 2018 priced at 230 bps over Treasuries on May 12, were seen trading Monday around 217 bps over.

In the credit-default swaps market, a trader said there was little activity, calling the debt-protection costs for big-bank and major brokerage paper alike 1 bp tighter to unchanged pretty much across the board.

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