eBay sells first bonds; Bank of Nova Scotia taps market; downgrade pressures H&R Block debt

By Andrea Heisinger and Cristal Cody

New York, Oct. 21 - eBay Inc. and Bank of Nova Scotia sold bonds on Thursday as companies continue to tap the market following earnings announcements.

eBay priced its first bond deal following its third-quarter numbers late Wednesday. The online marketplace sold $1.5 billion in three tranches to take advantage of low interest rates and to diversify its financing, a source said. The deal was divided among notes due 2013, 2015 and 2020.

The Bank of Nova Scotia priced a $2.5 billion offering of five-year covered bonds.

Big banks are mostly done reporting earnings, so there wasn't much for headlines to take down the market tone in the morning as there had been for much of the week.

"I would say it's not better, but not worse," a source said of the open.

There may be a stray deal or two on Friday, but it's expected to be a quiet day.

"The market's been down [for the week]," a source said. "I think there's paper in the pipeline, but maybe they didn't feel it was right to issue."

A source who worked on the eBay deal said that company decided to wade into the debt market for the first time after seeing some of the low rates that other highly rated names had been getting.

"They came out of blackout and went for it," he said. Some of the pricing was modeled after recent deals from similarly rated names since there was no outstanding debt as a reference point.

The new investment-grade debt from eBay firmed in the secondary market, while H&R Block, Inc.'s debt continued to feel the pressure on Thursday, a trader said.

Bonds in the financial sector stayed weak on the day, while telecom and cable media sector debt was about 3 bps better, a source said.

"Everything felt stronger going into the afternoon, but since then it's faded a little bit on the back of stocks," a trader said.

High-grade bonds in building materials did not see a ton of movement, firming about a quarter point, a source said.

The Markit CDX Series 14 North American investment-grade index tightened 1 bp to a spread of 97 bps, Markit Group Ltd. said.

Overall investment-grade Trace volume fell 5% to about $12.5 billion, a source said.

U.S. Treasuries fell, sending longer-dated yields up Thursday on better economic data. The yield on the 10-year note rose to 2.54% from 2.48%, and the yield on the 30-year bond rose 7 bps to 3.96%.

eBay sells first bonds

Online marketplace eBay priced $1.5 billion of senior notes (A2/A/A) in three parts in its first bond sale.

A $400 million tranche of 0.875% three-year notes priced at a spread of Treasuries plus 42 bps. The notes sold at the tight end of price talk in the 45 bps area.

The $600 million of 1.625% five-year notes sold at 57 bps over Treasuries. These also priced at the tight end of guidance in the 60 bps area.

A final tranche of $500 million of 3.25% 10-year notes priced at a spread of Treasuries plus 77 bps. This tranche priced at the tight end of talk in the 80 bps area.

Bookrunners were Bank of America Merrill Lynch, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC.

Proceeds are being used for general corporate purposes, including working capital, acquisitions and capital expenditures.

The company reported third-quarter earnings of $2.2 billion after the market close Wednesday. That was a 1% increase from the same quarter in 2009.

This was of late the third issue that had a three-year coupon of less than 1%. eBay followed in the footsteps of Microsoft Corp. and Wal-Mart Stores Inc.

The issuer is based in San Jose, Calif.

eBay takes focus

Investor attention was focused on eBay for the day, with the company having the only corporate bond issue in the market for the day.

"It went extremely well on the back of earnings," a source close to the deal said, adding that there was $13 billion or more in orders on the books and calling it a "blowout."

The $1.5 billion size of the sale was listed in a press release on Wednesday night after earnings were announced, and the company put a no-grow provision on it, the source said.

The company's stock was also performing well on Thursday, which also didn't hurt the bond deal.

Interest rates for the three notes were "phenomenal for an inaugural issue," he said.

Since there were no outstanding bonds for guidance, the bookrunners used paper from Oracle Corp., Cisco Systems Inc., Wal-Mart Stores and PepsiCo Inc. as data points.

It was "not a shocker" that the bonds priced so well, the source said.

"It's the only game in town for the e-commerce space," he said. "It was debt everyone wanted to own."

Scotiabank's covered bonds

Bank of Nova Scotia priced $2.5 billion of 1.65% five-year covered bonds (Aaa/AAA) by early afternoon to yield Treasuries plus 57.25 bps, a source close to the sale said.

Bank of America Merrill Lynch, Barclays Capital Inc., Morgan Stanley & Co. Inc. and Scotia Capital (USA) Inc. were bookrunners.

The bank did a previous $2.5 billion sale of three-year covered bonds on July 15.

The financial services company is based in Toronto.

eBay firms

eBay's bonds came in tighter in secondary trading, a source said.

"People just thought it priced cheap," a source said. "But it's definitely very well bid now. The three-year is not as active as the fives and 10s."

The first tranche of notes due 2013 firmed to 37 bps bid, 35 bps offered.

The notes due 2015 traded stronger immediately at 52 bps bid, 50 bps offered.

"They just traded down so they're even tighter now at 51, 49," a trader said.

The notes due 2020 firmed more than 6 bps in the secondary to 71 bps bid, 69 bps offered.

H&R pressured

H&R Block's high-grade bonds stayed active in the secondary on Thursday, a trader said.

"They're down about 2 to 2½ points today," the trader said. "They've had continued pressure over the last week."

Moody's Investors Service downgraded debt in H&R Block's finance unit on Wednesday. Block Financial LLC's long-term debt was cut from Baa1 to Baa2.

The Kansas City, Mo.-based tax preparer's notes due 2013 traded in the late afternoon at 96.6 bid, 97.25 offered, while the notes due 2014 were quoted at 86.5 bid, 87.25 offered.

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