IG primary remains strong following record week; recent deals tighten; Plains, Toll Brothers price

By Rebecca Melvin

New York, Sept. 9 – Investment-grade bond issuance remained robust on Monday, following a record post-Labor Day week last week.

The heavy volume of issuance is expected to slow somewhat now, but then remain steady.

“It will probably start to slow down after today. We had a frontend-loaded month. We were expecting about $130 million [in issuance] this month, and after today we are close to $85 billion to $90 billion,” a New York-based market source said.

There were another 15 issues unveiled on Monday, representing $10 billion to 12 billion in new paper.

“The market is in very good shape,” the market source said. The rates backdrop has been favorable and should continue to attract issuers. “Many issuers were trying to get ahead of the Fed,” the source said, referring to the Federal Open Market Committee’s regularly scheduled meeting on Sept. 17-18.

Meanwhile the pricing leverage is about 15 basis points to 20 bps, he said.

All of the deals that priced during last week’s record week “are better than they issued. They are notably better by 3 bps to 5 bps, or 10 bps tighter despite it being an historic week with $74 billion in supply.”

Meanwhile, “money continues to flow into the product,” he said.

Of the deals that priced last week, only Amphenol Corp. was pointed out as a notable loser. That deal of $900 million of 10-year notes was significantly wider. But that was an underperformer on liquidity, a market source said.

To the upside were deals like Phillips 66 Partners LP and Anthem Inc., which were both seen 10 bps tighter from issue. Phillips 66 priced $900 million of senior notes in two tranches due 2024 and 2029. The $300 million of 2.45% five-year notes priced at 99.763 to yield 2.497% or Treasuries plus 115 bps, and the $600 million of 3.15% 10-year notes at 99.7871 to yield 3.174%, or a spread of Treasuries plus 170 bps. Meanwhile, Anthem priced $2.5 billion in three tranches, including $850 million of 2.375% notes due 2025 that priced at 99.912 to yield 2.393%, or Treasuries plus 108 bps; $825 million of 2.875% 10-year notes that priced at 99.879 to yield 2.889% or 143 bps over Treasuries spread; and $825 million tranche of 3.7% 30-year notes that priced at 99.389 to yield 3.734%, or 178 bps over Treasuries.

Tighter by roughly 7 bps was B.A.T Capital Corp., which priced $3.5 billion principal amount of guaranteed debt securities, and across the Apple Inc. curve the tranches were generally 3 bps to 5 bps better.

There was a positive backdrop and companies wanted to get in ahead of the Fed.

The Fed is expected to cut rates but whether it’s a 25 bps cut or a 50 bps cut remains unclear.

If the economic data such as ISM and GDP comes in notably better than expected the cut could be smaller.

In the lineup on Monday were Toll Brothers Finance Corp., Spirit Realty, LP and Fortune Brands Home & Security, Inc.

Also announcing bond offerings were Baltimore Gas and Electric Co., Plains All American Pipeline LP, financial holding company BB&T Corp. and Mizuho Financial Group Inc.

Plains priced $1 billion of 3.55% senior notes (Ba1/BBB-/BBB-) at 99.801 to yield 3.572% and a spread of 195 bps over U.S. Treasuries, according to a pricing term sheet filed with the Securities and Exchange Commission.

The notes have a par call and then a make-whole call.

Citigroup Global Markets Inc., Mizuho Securities USA Inc., MUFG, Scotia Capital (USA) Inc., BBVA Securities Inc., BMO Capital Markets Corp., PNC Capital Markets LLC, RBC Capital Markets LLC, SMBC Nikko Securiteis America Inc., SunTrust Robinson Humphrey Inc., and U.S. Bancorp Investments Inc. are the joint bookrunners.

Split-rated Toll Brothers priced an upsized $400 million registered offering of 10-year senior notes (Ba1/BB+/BBB-) at par to yield 3.8%. Initial price talk was in the 4 1/8% area.

Fortune Brands, the Deerfield, Ill.-based home products and services company priced $700 million of 3.25% 10-year senior notes (Baa3(expected)/BBB+/BBB) at Treasuries plus 165 basis points, according to an FWP filing with the SEC.

Baltimore Gas priced $400 million of 3.2% 30-year notes (A3/A/A) at 99.122 to yield 3.246%, or 115 bps plus U.S. Treasuries, on Monday, according to a pricing term sheet filed with the SEC.

No pricing was heard on BB&T or Mizuho, but the market caught up with a few deals announced last week that priced including that of John Deere Capital Corp., which priced $1.25 billion of senior notes in three tranches, including $400 million of three-year floating-rate notes at par to yield Libor plus 49 bps; $400 million tranche of 1.95% three-year notes priced at 99.871 to yield 1.999% and a spread of 48 bps over Treasuries; and $450 million of 2.25% six-year notes at 99.755 to yield 2.288%, or a Treasuries plus 73 bps spread.

For the current week overall, something like $30 billion to $35 billion in issuance was expected to be priced, according to a BofA Merrill Lynch Global Research Report, which was published on Friday.

The floodgate has opened as expected the report said. “Our theme of issuance having shifted from supporting re-leveraging activities to refinancing in the currently low interest rate environment holds true as $47.9 billion of [last] week's issuance included commercial paper, credit revolver, term loan, short and long-term debt refinancing in the use of proceeds language.

Treasury yields rose in the session with the yield on the 10-year Treasury benchmark seen last at 1.643% compared to a 1.556% close on Friday.

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