Kraft, Berkshire, Pacific Life sell nearly $18 billion in bonds; Kraft tighter in trading

By Andrea Heisinger and Cristal Cody

New York, Feb. 4 - On the surface, Thursday seemed like a quiet day in the high-grade bond market with only three straight corporate deals from Kraft Foods Inc., Berkshire Hathaway Inc. and Pacific Life Corp.

The underlying factor was that those offerings totaled $17.95 billion.

Proceeds from both the Kraft and Berkshire Hathaway sales are being used for either mergers or acquisitions.

Kraft priced $9.5 billion in four tranches after the offering went overnight due to its size and complexity. At the end of Wednesday, the size was being talked at a minimum of $4 billion. It was subsequently upsized significantly due to demand. Price talk was revised at least once on Thursday from tentative guidance at the end of Wednesday. The tranches ended up pricing slightly wider than talk.

Berkshire Hathaway priced a slightly smaller $8 billion in six tranches, restructured from four. The sale is being used to partly pay for the acquisition of Burlington Northern Santa Fe.

Although these two sales racked up a hefty total of $17.5 billion, it was not the largest day for total bond sales in the investment-grade market.

One of the largest totals in recent memory was on Feb. 18, 2009, when $26.92 billion in bonds were priced in five different sales. The bulk came from Roche Holding AG with $16 billion and JPMorgan Chase & Co. with $10 billion of notes backed by the Federal Deposit Insurance Corp.

Pacific Life was by far the smallest and least complex sale Thursday, coming in at $450 million of 10-year notes that were sold under Rule 144A.

The week has been the busiest so far in 2010 as industrials and banks emerge from earnings blackouts.

A "couple of big deals in corps" from Kraft Foods and Berkshire Hathaway helped keep secondary traders waiting all day, according to a source. Kraft moved solidly tighter when trading did begin.

Meanwhile, new notes from PNC Funding Corp. and Valero Energy Corp., as well as outstanding notes from General Electric Capital Corp., were seen widening on Thursday.

Overall, Trace high-grade trading dollar volume dropped 21% to about $12 billion, a source cited.

Treasuries were much tighter on Thursday. The yield on the benchmark 10-year Treasury note firmed 11 basis points to 3.60%, while the yield on the 30-year Treasury bond tightened 9 bps to 4.55%.

The widely followed CDX Series 13 North American high-grade index surprised traders by easing 7 bps to a mid bid-asked spread level of 99 bps.

Kraft sells massive $9.5 billion deal

Kraft Foods priced $9.5 billion of senior unsecured notes (Baa2/BBB-/BBB-) late in the afternoon in four tranches after the sale went overnight.

It was launched to in the morning, but then re-launched in the afternoon as pricing was tweaked.

A $1 billion tranche of 2.625% notes due in 2013 priced wide to talk at a spread of Treasuries plus 140 bps. They were talked in the 150 bps area initially, and then at 137.5 bps early on Thursday.

A $1.75 billion tranche of 4.125% six-year notes priced at 190 bps over Treasuries.

The $3.75 billion of 5.375% 10-year notes also priced at a spread of Treasuries plus 190 bps.

Guidance for both the six-year and 10-year tranches was initially in the 187.5 bps area. This was later revised to 185 bps over Treasuries, with both tranches pricing at the wide end.

The final tranche of $3 billion in 6.5% 30-year bonds sold at Treasuries plus 205 bps. These notes were originally talked at 15 bps over the 10-year tranche's spread, or 200 bps, and priced wider than that.

The sale was initially expected to price late on Wednesday, but was held overnight due to the size and number of bookrunners involved, the source said. Pricing issues may have slowed the sale down on Thursday, with the sale ultimately being done wide to guidance, a market source away from the sale said.

When announced, the total issuance was thought to be "a minimum of $4 billion," a source said at the end of Wednesday, with each tranche at $1 billion or more. There was about $20 billion on the books at the end of the day, he added. Demand had risen to "about $3 to $4 billion more than that" by Thursday morning, a source said.

BBVA Securities, BNP Paribas Securities, Citigroup Global Markets, Credit Suisse Securities, Deutsche Bank Securities, HSBC Securities, RBS Securities and Societe Generale ran the books.

Proceeds are being used to finance the acquisition of Cadbury plc and for general corporate purposes.

The confection, food and beverage company is based in Northfield, Ill.

Berkshire Hathaway prices $8 billion, adds tranches

Berkshire Hathaway sold $8 billion in senior unsecured notes (Aa2/AA+) late in the day in an expanded six tranches, an informed source said.

The sale was initially announced in four tranches, according to a 424B2 filing with the Securities and Exchange Commission.

A $2 billion tranche of one-year floating-rate notes priced at par to yield three-month Libor minus 2 bps They were talked at Libor minus zero to 3 bps.

The $1.1 billion tranche of two-year floaters sold at par to yield three-month Libor plus 18 bps. They were talked at the same level.

Another tranche was $600 million of 1.4% two-year notes priced at a spread of 63 bps over Treasuries. This was tight to guidance in the 65 bps area.

The $1.2 billion of three-year floaters was priced at par to yield three-month Libor plus 43 bps. Guidance was the Libor plus 45 bps area.

A tranche of $1.4 billion in 2.125% three-year notes priced at Treasuries plus 83 bps, which was tight to talk in the 85 bps area.

The final tranche was $1.7 billion in 3.2% five-year notes priced at a spread of Treasuries plus 93 bps. The tranche also priced at the tight end of guidance in the 95 bps area.

J.P. Morgan Securities was the bookrunner.

Proceeds will fund part of the cash consideration paid to transportation company Burlington Northern Santa Fe Corp. stockholders in connection with the acquisition.

The acquisition was announced on Nov. 3, 2009, with Berkshire buying the remaining shares of Burlington Northern. The deal is worth $44 billion, including $10 billion in outstanding debt.

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

Tone 'shaky' as huge deals price

The two well-received bond offerings were priced even as the market tone was not stellar.

"There was a lot of momentum," a market source away from both deals said. "The week's been a busy one."

The Dow Jones Industrial Average had dipped by the end of the day on discouraging news about jobs and debt loads in foreign countries.

Despite this, it did not have much impact on the high-grade bond market.

"Anytime you see these kinds of deals, it's a good day," the market source said.

Since most syndicate desks were involved either the Kraft or Berkshire Hathaway sale, or both, it was the busiest day across the market in past months.

The Kraft deal in particular had eight bookrunners on it, and took all of two straight days to price due to its size and complexity.

A market source said that it was not necessarily a bad thing to have two bond sales of such large size in one day.

"They're in different sectors," he said, referring to the industrial and financial sides of the market. He added that "the investors are out there."

A syndicate source at a smaller desk said he didn't think there were any sales on tap for Friday, but that the success of Thursday's deals could propel "somebody into the market."

First big corporate of 2010

The mega-sales from Kraft and Berkshire Hathaway are the first large corporate deals of 2010, and they are following the trend of the previous year when other huge deals got done in the first couple of months.

There have been many multi-billion-dollar offerings so far this year, but most have been from sovereigns, banks or from overseas.

England's Lloyds TSB Bank plc sold $5 billion in multiple tranches on Jan. 5 and PepsiCo, Inc. priced $4.25 billion of notes on Jan. 11.

Another large domestic sale was priced earlier in the week by Williams Partners, LP and totaled $4.5 billion.

There were several giant sales at the beginning of 2009 from pharmaceutical companies that were fueled by mergers and acquisitions, making them similar to the Kraft and Berkshire deals.

One of the biggest bond deals ever in the investment-grade corporate market was $16 billion priced by Roche Holding AG on Feb. 18, 2009. At the time, it was called "the largest corporate in recent memory" and was used to partially fund the takeover of rival pharma company Genentech, Inc.

Another deal came from Pfizer Inc. with $13.5 billion priced on March 18, 2009, to fund its acquisition of Wyeth.

Both of the Roche and Pfizer sales went overnight, just as the Kraft deal did - and for the same reasons of logistics and high investor demand.

Pacific Life sells $450 million

Elsewhere in high grade, Pacific Life Corp. sold $450 million in 6% 10-year senior notes (Baa1/A-) via Rule 144A at Treasuries plus 250 bps, a market source away from the deal said.

Bank of America Merrill Lynch, J.P. Morgan Securities and UBS Investment Bank were bookrunners.

The insurance and financial company is based in Newport Beach, Calif.

Kraft tightens in secondary

Kraft's $9.5 billion of notes sold in four tranches to help fund its takeover of Cadbury were seen tightening late in secondary trading.

The notes due 2013, which priced at Treasuries plus 140 bps, firmed 5 bps to 135 bps over Treasuries, one trader said.

The notes due 2016, which priced at Treasuries plus 190 bps, tightened 6 bps to 184 bps over.

Also, the notes due 2020 firmed 7 basis points to 183 bps over in trading.

The last tranche due 2040 priced at Treasuries plus 205 bps and was seen tightening to 199 bps in the secondary.

Earlier in the day, the relaunched notes due in 2013 were seen in the gray market at 140 bps bid, 135 bps offered, according to a trader.

Kraft's paper was "doing better, allocations are out [and it's] still trading in gray," one trader said.

The six-year notes were quoted at 189 bps bid, 184 bps offered.

Also, the 10-year tranche moved in the gray market at 194 bps bid, 189 bps offered.

The tranche due 2040 was seen in the gray market at 207 bps bid, 202 bps offered, the trader said.

Valero mixed in second-day trading

The $1.25 billion of senior notes from San Antonio, Texas-based Valero Energy were mixed in secondary trading after pricing a day earlier, according to a source.

The 4.5% notes due 2015, which priced at Treasuries plus 215 bps on Wednesday, were seen early in the session trading tighter at 205 bps bid, 200 bps offered, the source said.

Meanwhile, the oil refiner's 6.125% notes maturing in 2020 priced on Wednesday at Treasuries plus 250 bps and widened to 255 bps over on Thursday.

PNC widens

PNC's $2 billion of notes moved out in next-day trading, one trader reported.

The 3.625% notes due 2015 were seen widening on Thursday at 127 bps over. The notes priced on Wednesday at a spread of Treasuries plus 125 bps.

Also, the 5.125% notes due 2020 were quoted wider at 137 bps over late Thursday. The notes priced at 145 bps over Treasuries.

Pittsburgh-based PNC is a financial services company.

GE moves out

General Electric Capital's outstanding notes have stayed active in high-grade trading the entire week and Thursday was no different, according to sources.

But instead of continuing the firming trend, the 5.5% notes due 2020 were seen on Thursday widening after tightening earlier in the day.

Just before the market closed, the notes were wider at 200 bps, but earlier were seen at 195 bps bid, 191 bps offered, a source said.

Late Wednesday the notes were at 188 bps bid, 183 bps offered, the source said.

The Fairfield, Conn.-based company is the financing division of General Electric Co.

© 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.