Kraft does $6 billion monster deal, tightens in secondary; Charles Schwab sells preferreds

By Aleesia Forni and Andrea Heisinger

New York, May 30 - New issuance from corporate names fell off on Wednesday. Kraft Foods Group Inc. sold $6 billion of bonds due in 2015, 2017, 2022 and 2042 as it prepares to split into two companies later in 2012.

The Kraft sale saw nearly $23 billion on the books on heavy investor interest. There was the most demand in the 10-year tranche, followed by the 30-year bonds, a source close to the trade said.

The company had been planning to tap the market.

"It helped that the 10-year [Treasury yield] was lower," the source said. "It helped them get that [3.5%] coupon."

All four tranches traded tighter in the secondary market, according to a trader.

There was also "a lot of focus" on the trade because it was the only corporate bond in the dollar market.

European Investment Bank tapped the market for $3 billion of triple-A rated notes due 2015. The full terms of the deal were not available at press time.

Charles Schwab Corp. priced an upsized $425 million offering of noncumulative perpetual preferred stock at the low end of guidance after going overnight from Tuesday. The size of the offering was initially $200 million, a source said.

The Kraft sale came after Tuesday's successful $2.4 billion trade in three parts from Eastman Chemical Co.

"That was a guinea pig, I think," a source said, referring to Eastman.

There could be more deals in the market on Thursday provided the tone doesn't get softer overnight.

"There are a couple that could look if the tone's good," a source who worked on Kraft said.

Headlines that the National Bank of Greece posted a sizeable loss for the first quarter didn't help the tone on Wednesday, the source said.

In other news, investment-grade bank and brokerage credit default swap costs rose on Wednesday.

Banks were wider. Bank of America's CDS costs widened 12 basis points to 295 bps bid, 300 bps offered. Citi's CDS costs widened 12 bps to 261 bps bid, 266 bps offered.

Brokers were also wider. Merrill Lynch's CDS costs traded 10 bps wider at 315 bps bid, 325 bps offered. Morgan Stanley's CDS costs traded 10 bps wider at 430 bps bid, 435 bps offered. Goldman Sachs' CDS costs widened 10 bps to 325 bps bid, 330 bps offered.

Kraft sells $6 billion

Kraft Foods Group priced $6 billion of notes (Baa2/BBB/) in four parts as it prepares to spin off its grocery business, an informed source said. The company will retain its snack foods and change its name to Mondelez International Inc.

Price talk came down about 15 bps across the board from initial whispers, a market source said. The size of the trade was initially talked at $4 billion but grew as investors took notice, and the company was willing to price up to $6 billion, the informed source said.

There was "just under $23 billion" of demand on the trade, the informed source said.

"You could definitely say it was a blowout," the source added.

A market source had said there was $17.5 billion of investor interest earlier in the afternoon.

The $1 billion of 1.625% three-year bonds sold at a spread of Treasuries plus 135 bps. The notes came at the low end of guidance in the 140 bps area.

A second tranche of $1 billion of 2.25% five-year paper priced at 160 bps over Treasuries. The spread was at the tight end of talk in the 165 bps area.

The $2 billion of 3.5% 10-year notes sold at Treasuries plus 200 bps. These notes were sold at the low end of guidance in the 205 bps area.

There was also $2 billion of 5% 30-year bonds priced at a spread of Treasuries plus 235 bps. The bonds were also priced at the tight end of talk in the 240 bps area.

All of the tranches had a plus or minus 5 bps provision on price talk.

Barclays Capital Inc., Citigroup Global Markets Inc., Goldman Sachs & Co., J.P. Morgan Securities LLC and RBS Securities Inc. were the bookrunners.

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

The company's three-year notes tightened to 123 bps bid at Wednesday's close, while the notes due 2017 traded at 147 bid late in the session, a trader said.

Additionally, the 10-year tranche of notes traded 18 bps tighter at 182 bps bid, 178 bps offered, while the 30-year notes closed tighter on Wednesday at 217 bps bid, 213 bps offered.

Kraft was last in the market with an $800 million sale of 18-month floating-rate notes on Jan. 5. Prior to that, Kraft priced a $9.5 billion deal in four parts on Feb. 4, 2010.

The food products and beverage manufacturer is based in Northfield, Ill.

Schwab brings preferreds

Charles Schwab priced a $425 million offering of 6% series B noncumulative perpetual preferreds, a trader told Prospect News.

Price talk on the preferreds (expected Baa2/BBB+/BB+) was originally 6% to 6.125%, the trader said. The deal was also upsized from $200 million.

"It's hanging out" at $24.65 bid, $24.70 offered in the gray market, a trader said. "I have a feeling it will be soft for a while, especially in this market."

The San Francisco-based investment company has applied to list the new preferreds on the New York Stock Exchange under the symbol "SCHWPB."

Bank of America Merrill Lynch, Citigroup, UBS Securities LLC and Wells Fargo Securities LLC were the bookrunners.

Proceeds will be used for general corporate purposes, which may include extending credit to or funding investments in subsidiaries and the possible refinancing of outstanding debt obligations.

Whirlpool widens

The secondary market saw the recent issuance from Whirlpool Corp. trade 6 bps wider on Wednesday, a market source said.

The company's upsized $300 million of 4.7% 10-year notes closed the session at 306 bps bid, 310 bps offered following Tuesday's pricing at Treasuries plus 300 bps.

Whirlpool is a Benton Harbor, Mich.-based appliance maker.

Scotiabank too

In other trading, Bank of Nova Scotia's 2.55% notes due 2017 widened 8 bps to 100 bps bid, according to a market source.

The bank sold $1.25 billion of the notes in January at 172 bps over Treasuries.

Bank of Nova Scotia is based in Halifax, N.S.

Citigroup widens

Citigroup Inc.'s 8.125% notes due 2039 traded 4 bps wider on Wednesday, closing at 305 bps bid, a source said.

The New York-based bank sold $2.5 billion of the notes on July 20, 2009 at a spread of 380 bps plus Treasuries.

Pfizer out 1 bp

Also in the secondary, Pfizer Inc.'s 6.2% notes due 2019 traded 1 bp wider at 43 bps bid at Wednesday's close.

The company priced $3.25 billion of the notes at Treasuries plus 325 bps in March 2009.

The pharmaceutical company is based in New York.

Stephanie N. Rotondo contributed to this review

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