Positive tone pushes Peco, Spectra to primary; Verizon tightens; telecom sector weak

By Cristal Cody and Aleesia Forni

Virginia Beach, Sept. 16 - A positive tone to Monday's high-grade bond market helped persuade five new issuers to bring deals to the primary market during the session.

Commonwealth Bank of Australia, ING Bank NV, Peco Energy Co., Spectra Energy Partners LP and AvalonBay Communities Inc. all priced new issues, sources said, selling $7.85 billion of high-grade paper on Monday.

Commonwealth Bank of Australia priced a $3 billion two-part notes offering in a Rule 144A and Regulation S transaction, according to a market source.

The bank priced $2 billion of three-year floaters at par to yield Libor plus 50 basis points and $1 billion of 2.5% five-year notes at Treasuries plus 90 bps.

Another financial name brought a new deal on Monday, as ING Bank sold a $2 billion offering of 5.8% 10-year tier 2 notes at 300 bps over Treasuries.

Meanwhile, Spectra Energy came to market with $1.9 billion of senior notes in three parts.

The company sold $500 million of 2.95% notes due 2018 priced at Treasuries plus 135 bps and $1 billion of 4.75% notes due 2024 at Treasuries plus 190 bps.

The deal also included $400 million of 5.95% notes due 2043 priced with a spread of Treasuries plus 205 bps.

Peco Energy brought a $550 million two-tranche offering of first and refunding mortgage bonds during the session, according to an informed source and an FWP filing with the Securities and Exchange Commission.

Peco priced a $300 million issue of 1.2% mortgage bonds due 2016 at Treasuries plus 45 bps.

There was also a $250 million tranche of 4.8% bonds due 2043, which sold at Treasuries plus 93 bps.

The day's smallest offering came from AvalonBay Communities, which priced $400 million of 3.625% notes due 2020 at 99.728.

Sources are expecting the week to end with $15 billion to $20 billion of new issuance.

"Maybe a few [new deals] tomorrow," one syndicate source said on Monday, though he added the Federal Open Market Committee's two-day meeting is likely to keep issuers on the sidelines during Wednesday's session.

In the late afternoon secondary market, the new bonds from Peco Energy traded flat, a trader said.

"Peco's wrapped around issuance," the trader said.

The Markit CDX Series 20 North American Investment Grade index firmed 2 bps, after declining as much as 3 bps earlier in the day, to a spread of 75 bps on Monday.

The CDX will roll to the new series 21 on Friday.

According to a provisional list, the index replaces LM Corp., H.J. Heinz Co. and Dell Inc., which were downgraded to junk, with Assured Guaranty Municipal Corp., Weatherford International Ltd. and Avon Products Inc. Also, Genworth Holdings, Inc. will replace Genworth Financial Inc. following a name change in the sector sub-indices.

Under that lineup, the "intrinsic spread of the new series 21 will be approximately 10 [bps] wider than the intrinsic spread of series 20," Jeffrey Meli, an analyst at Barclays, said in a note. "Since the average spread of the additions is approximately equal to the average spread of the removals, the whole 10 [bps] difference in intrinsic will be due to the six-month maturity extension of the new series."

CBA prices tight

Commonwealth Bank of Australia came to the primary on Monday with a $3 billion two-part issue of notes via Rule 144A and Regulation S, according to a market source.

Both tranches priced at the tight end of talk.

The bank sold $2 billion floating-rate notes due 2016 at par to yield Libor plus 50 bps.

There was also $1 billion of 2.5% notes due 2018 sold with a spread of Treasuries plus 90 bps.

Pricing was at 99.897 to yield 5.22%.

A three-year tranche of fixed-rate notes was dropped from the deal.

The bookrunners were Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC.

The Sydney, Australia-based banking and financial services company was last in the U.S. bond market with $2 billion of 0.75% three-year covered bonds priced with a spread of Treasuries plus 32 bps on Jan. 9, 2013.

ING sells tier 2 notes

Monday's session also saw ING Bank price $2 billion of 5.8% 10-year tier 2 notes at 300 bps over Treasuries, according to a market source.

The notes priced tighter than talk, which was set in the area of Treasuries plus 312 bps.

ING sold the Rule 144A and Regulation S issue at 99.543 to yield 5.86%.

Barclays, Citigroup Global Markets, Deutsche Bank Securities Inc. and ING were the joint bookrunners.

The financial services company is based in Amsterdam.

Spectra sells three-parter

Monday's largest non-financial deal came from Spectra Energy.

The company sold $1.9 billion of senior notes in a three-part issue, according to an informed source.

All three tranches sold at the tight end of talk.

The deal included $500 million of 2.95% notes due 2018 priced with a spread of Treasuries plus 135 bps, or 99.829, to yield 2.987%.

A $1 billion issue of 4.75% notes due 2024 priced at Treasuries plus 190 bps.

Pricing was at 99.765 to yield 4.779%.

Finally, the company sold $400 million of 5.95% notes due 2043 at 99.875 to yield 5.959%, or Treasuries plus 205 bps.

Morgan Stanley, BofA Merrill Lynch, JPMorgan, RBC Capital Markets, Barclays, Citigroup Global Markets, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities, Mitsubishi UFJ Securities, RBS Securities Inc., SMBC Nikko Securities, UBS Securities LLC, SunTrust Robinson Humphrey Inc. and Wells Fargo Securities, LLC were the joint bookrunners.

Proceeds will be used to fund the acquisition of certain subsidiaries from Spectra Energy Corp.

The natural gas transmission and production company is based in Houston.

Peco gets $550 million

In other primary news, Peco Energy sold a $550 million two-part issue of first and refunding mortgage bonds (A1/A-/A) on Monday, according to an informed source and an FWP filing with the SEC.

The deal included $300 million of 1.2% mortgage bonds due Oct. 15, 2016 with a spread of Treasuries plus 45 bps, or at 99.856, to yield 1.248%.

A $250 million tranche of 4.8% bonds due Oct. 15, 2043 priced at Treasuries plus 93 bps.

Pricing was at 99.633 to yield 4.823%.

The joint bookrunners were BofA Merrill Lynch, Credit Suisse Securities, Wells Fargo Securities, Mizuho Securities and RBC Capital Markets.

Proceeds will be used to pay at maturity $300 million of 5.6% first mortgage bonds due Oct. 15, 2013 and for general corporate purposes. Any remaining proceeds are expected to be temporarily invested in short-term interest-bearing obligations.

The electric and natural gas transmission subsidiary of Exelon is based in Philadelphia.

AvalonBay's seven-year notes

Meanwhile, AvalonBay Communities was in Monday's market selling $400 million of 3.625% notes due Oct. 1, 2020 at 99.728, according to an FWP filing with the SEC.

Full details were not available at press time.

The company plans to use proceeds to reduce debt under the company's $1.3 billion unsecured revolving credit facility and for general corporate purposes.

The manager and developer of apartment communities is based in Arlington, Va.

Verizon active

Verizon Communication Inc.'s bonds continue to tighten compared to issuance on active trading, according to market sources.

Verizon's 5.15% notes due 2023 (Baa1/BBB+/A-) firmed to 159 bps bid, 156 bps offered on Monday, a trader said.

The New York City-based telecommunications company sold $11 billion of the 5.15% notes due 2023 with a spread of Treasuries plus 225 bps in the eight-tranche offering priced last Wednesday.

Verizon's record deal and additional speculation about other merger and acquisition activity in the telecommunications sector have sent telecom bonds wider in September, according to market sources.

"The communications sector is now the second-widest trading sector in the index, after basic materials, and has generated -130 bps of excess returns year-to-date and -91 bps month-to-date," Meli said of the Barclays credit index. "While the underperformance of the sector ahead of a $49 billion deal is understandable, we believe that the technical pressure on the sector's spreads should fade now that the new supply is absorbed."

Bank/brokerage CDS costs lower

Investment-grade bank and brokerage CDS costs declined on Monday, according to a market source.

Bank of America Corp.'s CDS costs firmed 1 bp to 100 bps bid, 104 bps offered. Citigroup Inc.'s CDS costs tightened 3 bps to 91 bps bid, 95 bps offered. JPMorgan Chase & Co.'s CDS costs closed 3 bps tighter at 81 bps bid, 85 bps offered. Wells Fargo & Co.'s CDS costs firmed 1 bp to 59 bps bid, 63 bps offered.

Merrill Lynch's CDS costs declined 3 bps to 95 bps bid, 100 bps offered. Morgan Stanley's CDS costs firmed 4 bps to 129 bps bid, 134 bps offered. Goldman Sachs Group, Inc.'s CDS costs tightened 2 bps to 121 bps bid, 125 bps offered.

Paul Deckelman contributed to this review

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