Bank of America, Fifth Third, Pearson, KLA-Tencor price ahead of Fed; flat tone seen as positive

By Andrea Heisinger and Paul Deckelman

Omaha, April 29 - Issues from Bank of America Corp., Fifth Third Capital Trust VII, Pearson Dollar Finance and KLA-Tencor Corp. priced Tuesday, adding to what will likely be a record month of new offerings.

Still, the $6 billion size of the issue from Bank of America was not surprising to at least one market source.

"We kind of anticipated a large size," the source said. "Before this year began one of the liquidity themes that was anticipated was that benchmark deals would grow in size. Last year it would have been $2 to $3 billion."

The bank priced five and 10-year notes.

The $2 billion 4.9% five-year tranche priced at 99.724 to yield 4.963% with a spread of Treasuries plus 185 basis points.

The $4 billion of 5.65% 10-year notes priced at 99.465 to yield 5.721% with a spread of Treasuries plus 190 bps.

Banc of America Securities LLC was bookrunner.

In the investment-grade secondary market Tuesday, advancing issues led decliners by a three-to-two ratio, while overall market activity, reflected in dollar volumes, jumped by 25% from Monday's pace.

Spreads in general were not much changed, as Treasury yields were mixed and only slightly different from Monday, with the yield on the benchmark 10-year issue, for instance, widening by 1 basis point to 3.82%.

Recently priced issues continued to tighten, although some were considerably firmer than others; while the new Pearson bonds came in markedly from the spread levels at which they had priced, Monday's Bristol-Myers Squibb bonds only firmed modestly. Friday's Dr. Pepper Snapple bonds continued to trade at considerably tighter levels.

Among the established issues, Bank of America bonds were seen having widened out, likely hurt by the big losses racked up by Countrywide Financial Corp., which B of A is in the process of buying for $4 billion.

Pearson Dollar brings $900 million

Pearson Dollar priced $900 million, also in five and 10-year tranches.

The $350 million of 5.5% five-year notes priced at a spread of Treasuries plus 245 bps.

The $550 million of 6.25% 10-year notes priced at a spread of Treasuries plus 245 bps.

The issue from the funding branch of education and information media company Pearson plc priced via Rule 144A.

Barclays Capital Inc., BNP Paribas Securities and Citigroup Global Markets Inc. were bookrunners.

KLA upsizes

Two issues originally announced Monday also priced.

KLA-Tencor priced an upsized $750 million of 6.9% 10-year senior notes at Treasuries plus 320 bps.

The sized was increased from $500 million, a market source said.

Merrill Lynch, Pierce, Fenner & Smith Inc. was bookrunner.

Fifth Third brings preferreds

A subsidiary of Fifth Third Bancorp priced $350 million of trust preferred securities due 2068.

They have a fixed rate of 8.875% until 2048, and then a floating rate of three-month Libor plus 500 bps.

The issue had price talk of 8.875 to 9%, a market source said.

The securities priced at par of $25 and are non-callable for five years.

Morgan Stanley & Co. Inc., Citigroup, Merrill Lynch, UBS Investment Bank and Wachovia Capital Securities LLC were bookrunners.

Wednesday seen quiet

Wednesday will likely have a lull of new issues prior to the Federal Reserve meeting.

There is mixed opinion of whether there will be a 25 bps rate cut, or none, sources said.

"Futures implied a 25 bps cut, but I wouldn't rule out unchanged," a source said.

"Heading into the Fed, I wouldn't expect a whole lot [of new issues]."

There are still a few potential issues floating around, a source said, but they likely won't price Wednesday.

"I think it's true that people seem not to have a heavy supply," he said. "They're just sitting on a couple of things."

The tone of the investment-grade market has remained largely unchanged for the last week or two, fluctuating 10 bps or so tighter or wider, a market source said.

Tuesday, the CDS was unchanged to a touch wider than Monday, he said.

The stagnant conditions are necessarily a bad thing.

"We saw such a move tighter following the Bear Stearns news that it's good for the market to stay where it is," the source said. "It's healthy for the market."

Pearson bonds trade up on break

A trader saw the new Pearson plc bonds having firmed by about 20 bps from the spread over Treasuries at which the bonds were issued. He saw both the 5.50% notes due 2013 and the 6.25% notes due 2018 having come in to trading levels around 225 bps bid, 215 bps offered - well in from the 245 bps over level at which both tranches had priced.

Dr. Pepper Snapple still sparkles

Also continuing to do well in the secondary market was Dr. Pepper Snapple. A trader saw the 6.12% notes due 2013, which had priced Friday at 295 bps over, having come in to 258 bps bid, 253 bps offered. The 6.82% notes due 2018, which also priced at 295 bps over, were at 260 bps bid, 255 bps offered.

And the 7.45% bonds due 2038, which priced at a spread of 287.5 bps, traded Tuesday at 246 bps bid, 241 bps offered.

New Bristol-Myers bonds sluggish

However, the new Bristol-Myers bonds were seen in by only about 5 bps from their issue spread. Both the 5.45% notes due 2018 and the 6.125% bonds due 2038 priced at a spread of 165 bps over Monday, and were quoted Tuesday trading at 160 bps bid, 155 bps offered.

B of A bonds retreat on Countrywide

Bank of America's bonds were seen having widened out, possibly in response to the poor earnings figures posted by Countrywide. B of A's 5.75% notes due 2017 - among the more actively traded bonds - were seen having widened out to a spread of 182 bps over from levels around 151 bps on Monday. In dollar-price terms, the bonds lost more than 2 points on the session to end at 100.756.

Other actively traded B of A issues seen ending lower were its 5.375% notes due 2012 and its 4.875% notes due 2013.

A trader meantime saw Countrywide Financial's 6¼% notes due 2016 - nominally investment-grade rated but in actuality trading around the junk bond market - 2 points better at 87 bid, 89 offered, despite a bad tumble into the red in the most recent quarter, which saw the Calabasas, Calif.-based mortgage originator lose $893 million, versus its year-ago $434 million gain. He chalked the seemingly incongruous rise in the bonds up to "short covering, probably."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.