Japan Finance, ProLogis sell bonds; market quiet as spreads widen; ProLogis trades briskly

By Andrea Heisinger

New York, Oct. 27 - Japan Finance Corp. and ProLogis each priced bonds on Tuesday as the focus moved to the secondary side of the investment-grade market, which saw an increase in volume.

Continental Airlines, Inc. did an upsized sale of pass-through certificates in class A and class B tranches. The tranches totaled $644,437,000 and are being offered to finance the purchase of several new aircraft. The issue was upsized to finance more airplanes.

Volume increased in the secondary from what has normally been seen, a trader said.

ProLogis had the hot bond of the day with its new issue due 2019. The paper tightened by 5 to 10 basis points once freed for trading.

A bond priced the previous day by Oglethorpe Power Corp. continued to improve. It was trading about 15 bps better than where it priced.

Spreads moved significantly wider by late in the day as Treasury yields contracted. The five-year note moved 13 bps tighter. The 30-year bond was 9 bps better than the previous day.

ProLogis prices tight to talk

Industrial distribution facility operator ProLogis priced $600 million of 7.375% 10-year senior notes at Treasuries plus 395 bps.

This was tighter than talk in the 412.5 bps area, which a source quoted early in the day.

Bank of America Merrill Lynch, Citigroup Global Markets Inc. and Goldman Sachs & Co. ran the books.

Proceeds will be used by the Denver-based company to repay borrowings under a global line of credit and for general corporate purposes, including repayment and repurchase of debt.

Japan Finance sells $3 billion bonds

Japan Finance priced $3 billion of 2.125% three-year guaranteed bonds after the deal went overnight from Monday. The bonds were sold at Treasuries plus 58.8 bps, according to an FWP filing with the Securities and Exchange Commission.

Barclays Capital, Bank of America Merrill Lynch and J.P. Morgan Securities ran the books for the bonds, which were guaranteed by the Japanese government.

Proceeds will go toward the operations of the Japan Bank for International Cooperation.

The issuer provides financing to Japanese businesses and banks and is based in Tokyo.

Primary tone unchanged

The primary market remained dull on Tuesday as the focus shifted more to the secondary as new deal volume was minimal.

"It was pretty dull [today]," a source said. "There was the [2-year] Treasury auction, and I know people watched that."

The ProLogis deal was about the only new deal that the market was focused on.

It was described as "nicely oversubscribed" by a source who worked on it. A firm tally of demand for the issue was not immediately available.

A trader described the bond as "flying off the shelf."

Other than that, action in the high-grade market was slow and is expected to stay that way.

"We don't have anything [planned] for the rest of the week," a source at a smaller syndicate desk said. "I would imagine there is [new deal volume] away."

Continental Airlines upsizes

Houston-based Continental Airlines sold an upsized $644,437,000 of class A and class B pass-through certificates late on Tuesday, a market source away from the sale said.

The size was increased from $579,273,000 in order to purchase more aircraft, according to a supplemental FWP filing with the SEC.

The issue included $527,625,000 of class A certificates (Baa2/A-/) that have a final maturity of 2021 and an average life of 7.9 years.

There was also a $116,812,000 tranche of split-rated class B certificates (Ba2/BBB-/) that have a final maturity in 2018 and an average life of 4.9 years.

Each tranche has a make-whole call at Treasuries plus 75 bps.

Morgan Stanley & Co., Goldman Sachs and Credit Suisse Securities are bookrunners and structuring agents.

Proceeds are being used to finance nine new Boeing aircraft and to refinance eight existing aircraft.

ProLogis 2019 tightens 5-10 bps

The new 7.375% bond due 2019 sold by ProLogis was tighter by 5 to 10 bps soon after pricing in the middle of the afternoon at 395 bps over Treasuries.

It was a "hot bond" for the day, a trader said. It was quoted at 389 bps bid, 386 bps offered and then at 390 bps bid, 387 bps offered.

"I saw it offered anywhere between [3]83 to [3]86," she said.

"There's not much else to grab out there."

Petroleum names lead trading

Two bonds sold the previous week by Brazil's Petrobras International Finance were at the top of trading by early afternoon. The popularity may be investor holdover from the massive $4 billion bond issue, a trader said.

"Petrobras was by and far the largest volume today," a trader said.

The shorter bond of the two, a 5.75% due 2020, was leading trading volume and was quoted at 219 bps over Treasuries.

This issue was also one of the day's biggest movers. It was wider by about 20 bps, with a quote at 235 bps by the end of the day.

The 6.875% bond due 2040 that made up the other half of the sale came in behind that one. It was quoted at Treasuries plus 258 bps.

"People are grabbing for new issues," a trader said of the recently priced bonds.

Shell International Finance BV saw its 4.3% bond due 2019 come in behind the two Petrobras bonds in terms of volume.

The company's parent, oil company Royal Dutch Shell, reports its third-quarter earnings on Thursday. Its earnings are expected to fall based on lower demand and prices.

Oglethorpe Power bond in nicely

A new 5.95% bond due 2039 priced Monday by Oglethorpe Power was improved from its trading levels the previous day, a trader said.

The paper was quoted at 148 bps bid, 144 bps offered, in about 15 bps from its price of 160 bps over Treasuries. The bond was quoted at 154 bps bid, 150 bps offered after selling.

Trading volume increases

Trading volume was heavy by the end of the day, a trader said after the market close. It has been between $7 billion to $8 billion in trades but on Tuesday was at about $9.2 billion.

"I think the two-year Treasury auction was just stellar today and got everyone spooked," the trader said. "[Investors] were just grabbing at anything that was good."

Bank, broker CDS widen

After a couple of days of tightening, credit-default swaps for bank and brokerage names were quoted as wider by the end of the day, a trader said.

Bank names were 2 to 5 bps wider, while brokerages moved out between 4 and 7 bps.

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