IBM taps market, causes Berkshire, Diageo, Penske, others to jump in; bonds trade mostly flat

By Andrea Heisinger and Cristal Cody

New York, May 8 - Issuance in the investment-grade bond market was bursting with high-quality names on Tuesday as companies joined International Business Machines Corp. and Berkshire Hathaway Finance Corp. in selling bonds.

IBM sold $1.5 billion of paper in two maturities, while Berkshire Hathaway priced $1.6 billion in three tranches. Both of the issuers were in the market earlier in 2012 and decided to come in again to take advantage of low coupons and yields, sources said.

"IBM announced, and everybody else just piled in," a syndicate source who worked on two of the day's deals said.

IBM also managed to snag a record low coupon for its seven-year paper, a market source away from the deal said.

Two units of alcoholic beverage company Diageo - Diageo Capital plc and Diageo Investment Corp. - sold $2.5 billion of notes, also in three parts.

Among the smaller sales of the day were Georgia Power Co. with an upsized $750 million trade in two tranches, Motorola Solutions, Inc. pricing $750 million of 10-year notes and Penske Truck Leasing Co., LP and PTL Finance Corp. selling $1.75 billion of bonds in two parts under Rule 144A and Regulation S.

Penske has not been in the U.S. dollar bond market since at least 2007, when the company was rated as junk, but investors were ready to buy and the deal was upsized by $1 billion.

The day's tone wasn't great at the open with equities down, but that didn't stop issuers from jumping into the high-grade bond market.

"Everyone felt it wasn't that painful, or not worth worrying about," a syndicate source said after the market close.

There is "definitely more" issuance expected for Wednesday.

Corporate bonds ended slightly weaker, sources said. The Markit CDX Series 18 North American investment-grade index rose 1 basis point to a spread of 101 bps after easing 4 bps the previous day.

Devon Energy's three tranches traded 2 bps to 3 bps better.

Georgia Power's new notes due 2022 widened about 2 bps in trading, while the 30-year reopening traded flat, sources said.

IBM's two tranches were seen wrapped around the issue price in secondary trading.

Motorola's new notes traded flat.

Berkshire Hathaway's five-year notes firmed about 3 bps, while the other tranches traded about 1 bp tighter.

Diageo's three tranches traded about 1 bp better.

Treasuries traded stronger on European political concerns. The benchmark 10-year note yield fell 3 basis points to 1.84%. The 30-year bond yield dropped to 3.03% from 3.06%.

IBM offers $1.5 billion

IBM sold $1.5 billion of notes (Aa3/A+/A+) in two tranches, a market source said.

A $900 million tranche of 0.75% three-year paper priced at a spread of Treasuries plus 45 bps. The notes sold at the tight end of guidance in the 45 to 47 bps range.

There was a second tranche of $600 million in 1.875% seven-year paper priced at Treasuries plus 65 bps. The notes were priced below talk in the 70 bps area.

The coupon on the seven-year notes was the "the first time it's popped below 2[%]," a market source said. "I don't know if they were coupon hunting."

Bookrunners for the deal were Barclays Capital Inc., HSBC Securities (USA) Inc., J.P. Morgan Securities LLC and RBS Securities Inc.

Proceeds are being used for general corporate purposes.

IBM was in the market with a $2.5 billion deal in two parts on Feb. 1. A 0.55% three-year note from that offering priced at 42 bps over Treasuries.

In the secondary market, IBM's notes due 2015 traded at 44 bps bid, 42 bps offered and later at 45 bps bid, 41 bps offered, according to traders.

The notes due 2019 were seen at 65 bps bid, 60 bps offered.

The information technology and computer company is based in Armonk, N.Y.

Berkshire Hathaway tranches

Berkshire Hathaway Finance sold $1.6 billion of senior notes (Aa2/AA+/A+) in three parts, a source close to the trade said.

There was just under $8 billion of demand on the books, the source said.

"There were a whole lot of orders."

The $750 million of 1.6% five-year paper sold at a spread of Treasuries plus 85 bps. The tranche sold tighter than talk in the 95 bps area, the source said.

A $350 million tranche of 3% 10-year notes priced at 125 bps over Treasuries. The notes were sold at the low end of guidance in the 130 bps area.

There was also $500 million of 4.4% 30-year bonds sold at a spread of Treasuries plus 145 bps. The bonds priced tighter than guidance in the 160 bps area.

Bookrunners were Bank of America Merrill Lynch, Goldman Sachs & Co., J.P. Morgan Securities LLC and Wells Fargo Securities LLC.

The deal is guaranteed by parent company Berkshire Hathaway Inc.

The parent company was in the market with a $1.7 billion deal in two parts on January 24. The 1.9% five-year notes from that deal priced at 100 bps over Treasuries while a 3.4% 10-year note sold at 137.5 bps.

In the secondary market, Berkshire Hathaway's notes due 2017 firmed to 82 bps bid, 81 bps offered, one trader said.

The notes due 2022 edged tighter to 124 bps bid, 120 bps offered. Another trader saw the notes wider at 126 bps bid, 121 bps offered.

The 30-year bonds traded at 144 bps bid, 141 bps offered.

The holding company for various subsidiaries is based in Omaha, Neb.

Diageo units' $2.5 billion

Diageo Capital and Diageo Investment sold $2.5 billion of notes (A3/A-/A-) in three maturities, a market source said.

Diageo Capital priced a $1 billion tranche of 1.5% five-year notes priced at a spread of Treasuries plus 82 bps.

The other two tranches were sold by Diageo Investment.

A $1 billion tranche of 2.875% 10-year notes sold at a spread of 107 bps over Treasuries.

Finally, there was a $500 million tranche of 4.25% 30-year bonds priced at a spread of 125 bps over Treasuries.

Bookrunners were Deutsche Bank Securities Inc., Morgan Stanley & Co. LLC, Nomura Securities International Inc. and RBS Securities Inc.

Proceeds are being used for general corporate purposes.

Diageo was last in the market when its unit Diageo Finance BV sold $500 million of 3.25% notes due 2015 at 97 bps over Treasuries on Nov. 3, 2009.

Diageo Capital's notes due 2017 traded at 81 bps bid, 76 bps offered, according to traders at separate desks.

The notes due 2022 were seen at 106 bps bid, 103 bps offered.

The 30-year tranche traded at 124 bps bid, 122 bps offered.

The premium drink company is based in London.

Penske's upsized offering

Penske Truck Leasing and PTL Finance jointly offered $1.75 billion of senior notes (Baa3/BBB-/) in two tranches, an informed source said.

The deal size was increased from $750 million because of "plenty of demand," the source said.

"There was about $4.5 billion [on the books]."

The $875 million of 3.125% three-year paper sold at a spread of Treasuries plus 280 bps.

A $875 million tranche of 3.75% five-year notes priced at Treasuries plus 300 bps.

Bank of America Merrill Lynch, J.P. Morgan Securities LLC and Wells Fargo Securities LLC were bookrunners.

The deal was done under Rule 144A and Regulation S.

Proceeds are being used to repay outstanding debt to General Electric Capital Corp.

In afternoon trading, Penske's notes due 2017 were seen at 285 bps offered, a trader said.

The global transportation services provider is based in Reading, Pa.

Georgia Power in two parts

Georgia Power priced an upsized $750 million of senior notes (A3/A/A+) in two tranches of both new and reopened paper, an informed source said.

The deal size was increased from $500 million, the source said.

A $400 million tranche of 2.85% 10-year notes sold at a spread of 103 bps over Treasuries.

The company also reopened its 4.3% bonds due 2042 to add $350 million. The new bonds priced at Treasuries plus 120 bps.

Total issuance is $1.1 billion, including $750 million of notes priced on Feb. 29 at 120 bps over Treasuries.

Active bookrunners for both deals were Goldman Sachs & Co. and J.P. Morgan Securities LLC.

Proceeds are being used for the proposed redemption of all or a portion of $300 million of 6.375% notes due July 15, 2047, to repay a portion of short-term debt and for general corporate purposes including the continuous construction program.

Georgia Power's notes due 2022 widened in trading to 105 bps bid, 103 bps offered, a trader said.

The 30-year reopening was seen flat at 120 bps bid, 119 bps offered and later at 120 bps bid, 117 bps offered, traders said.

The electric subsidiary of the Southern Co. is based in Atlanta.

Motorola prices $750 million

Motorola Solutions priced an upsized $750 million of 10-year senior notes (Baa2/BBB/BBB) to yield Treasuries plus 195 bps, an informed source said.

The size of the trade was increased from $500 million. Full terms were not available at press time.

Deutsche Bank Securities Inc., Goldman Sachs & Co. and J.P. Morgan Securities LLC were bookrunners.

Proceeds are being used to repay $400 million of 5.375% notes due November 15.

In secondary trading, Motorola's notes due 2022 traded flat at 195 bps bid, 191 bps offered, traders said.

Motorola provides communications for enterprise and the government and is based in Schaumburg, Ill.

Devon Energy's terms

Devon Energy Corp. gave the terms of its $2.5 billion deal of senior notes (Baa1/BBB+/) sold on Monday in three tranches in an FWP filing with the Securities and Exchange Commission.

The deal included $750 million of 1.875% five-year notes priced at a spread of Treasuries plus 115 bps.

A second part was $1 billion of 3.25% 10-year paper sold at a spread of Treasuries plus 145 bps.

The final tranche was $750 million of 4.75% 30-year bonds priced at Treasuries plus 175 bps.

Active bookrunners were Goldman Sachs & Co. and Morgan Stanley & Co. LLC.

Proceeds are being used to repay commercial paper borrowings as they come due, repay amounts drawn on a revolving credit facility and for general corporate purposes.

In the secondary market, Devon Energy's notes due 2017 traded tighter at 112 bps bid, 109 bps offered, according to traders.

The notes due 2022 firmed to 143 bps bid, 141 bps offered.

The 30-year tranche was seen going out stronger at 172 bps bid, 169 bps offered.

The oil, natural gas and natural gas liquids company is based in Oklahoma City, Okla.

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