Valero, PNC, Florida Power among new bonds, Kraft plans large sale; PNC firmer, Dow active

By Andrea Heisinger and Cristal Cody

New York, Feb. 3 -Valero Energy Corp., PNC Funding Corp., Florida Power & Light Co., Elm Road Generating Station Supercritical LLC and Council of Europe Development Bank all priced bonds on a Wednesday when one deal in particular lifted the high-grade bond market's tone.

The biggest news of the day came in the form of a deal from Kraft Foods Inc. that was announced but did not price due to its size and the number of bookrunners involved, a market source said.

"That was kind of it for the day," he said. "Everyone's busy with that."

Proceeds are being used to partly finance the acquisition of British confectioner Cadbury plc.

There were other noteworthy, large sales that mostly priced late in the day.

PNC Funding sold $2 billion of notes in five- and 10-year tranches late in the afternoon. Valero Energy sold $1.25 billion of notes in the same maturities, also late in the day.

Florida Power was one of the first to price its deal, selling $500 million of 30-year first mortgage bonds.

Council of Europe Development Bank sold $1 billion of five-year senior unsecured notes after the deal went overnight to allow for a more diverse field of investors.

Elm Road Generating - a Wisconsin Electric Power Co. subsidiary - sold $530 million of senior unsecured notes under the radar in two tranches. The sale was in 20- and 30-year maturities.

Building Materials Corp. of America gave terms for its split-rated sale of $250 million in 10-year senior notes that priced late on Tuesday. It was handled off the high-yield syndicate desk, a source said.

The talk of the day revolved around the impending Kraft sale, and it will likely consume Thursday as well. There are other less high-profile sales expected for the remaining two days of the week.

In secondary trading on Wednesday, new deals such as the latest from PNC Financial Services firmed, while Dow Chemical Co.'s paper was active, traders reported.

In addition, the telecommunications sector and banks including the Bank of America Corp. and Citigroup Inc. firmed by the end of the day, according to sources.

Overall Trace high-grade trading dollar volume rose about 22% to nearly $15 billion, according to a source.

Meanwhile, the CDX Series 13 North American high-grade index was unchanged on Wednesday at a mid bid-asked spread level of 92 bps, according to a source.

Treasuries were weaker. The yield on the benchmark 10-year Treasury note eased 7 bps to 3.71%. The yield on the 30-year Treasury bond also was seen weaker by 8 bps at 4.64%.

Kraft plans four-tranche sale

Kraft Foods continued its command of the headlines and investment-grade bond market with its upcoming pricing of "a minimum of $4 billion" in senior unsecured notes in four tranches on Thursday, according to a market source.

The notes are in tranches due in 2013, 2016, 2020 and 2040. Each of the tranches is expected to be at least $1 billion, the source said.

Price talk for the tranche due in 2013 is in the 150 basis point area. Both the six-year notes and 10-year notes are being talked at the 187.5 bps area. A tranche of 30-year bonds has guidance of 15 bps more than the 10-year tranche.

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. There was about $20 billion on the books at the end of the day, he added.

BBVA Securities, BNP Paribas Securities, Citigroup Global Markets, Credit Suisse Securities, Deutsche Bank Securities, HSBC Securities, RBS Securities and Societe Generale are bookrunners.

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

The process of Kraft taking over Cadbury has been a drawn out one. Initial hostile bids were deemed too low. A recent bid of about $18.7 billion was accepted, and approved by Cadbury shareholders on Tuesday - one day before the mega-bond sale was announced.

The delay in pricing was mostly due to logistics.

"There's nothing wrong with the trade," a market source said.

A downgrade by Standard & Poor's ratings agency to BBB from A- has not changed investor's attitude toward buying the bonds.

"No one cares," the market source said.

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

PNC sells two tranches

PNC Funding priced $2 billion of senior notes in two tranches late in the afternoon, according to a market source away from the deal.

This was the maximum amount the company planned to offer. It had previously announced in a press release that the size would be between $1.5 billion and $2 billion.

The $1 billion tranche of 3.625% five-year notes priced at a spread of Treasuries plus 125 bps.

A $1 billion tranche of 5.125% 10-year notes priced at 145 bps over Treasuries.

The sale is guaranteed by parent company PNC Financial Services Group, Inc.

J.P. Morgan Securities and Morgan Stanley & Co. were bookrunners.

Proceeds, along with those from a $3 billion sale of common stock, will provide liquidity to the company in connection with its redemption of $7.6 billion in Troubled Asset Relief Program preferred shares following the debt offering.

The financial services company is based in Pittsburgh.

Valero prices $1.25 billion

San Antonio, Texas-based oil refinery Valero Energy sold $1.25 billion of senior notes in two tranches late in the day, a source close to the sale said.

The $400 million tranche of 4.5% five-year notes priced at Treasuries plus 215 bps.

An $850 million tranche of 6.125% 10-year notes was sold at a spread of Treasuries plus 250 bps.

Bank of America Merrill Lynch, Barclays Capital, Citigroup Global Markets, Credit Suisse Securities and J.P. Morgan Securities were bookrunners.

Proceeds will be used for general corporate purposes, including refinancing debt.

New deals invigorate market

A strengthening of tone that began on Tuesday was even better by Wednesday, a market source said at the end of the day.

"It's definitely looking better out there," he said.

One of the reasons he listed for this uptick was the Kraft Foods sale, which was the talk of the high-grade market.

Its exact size had not been announced, but demand was already at $20 billion, according to one source.

There are other deals remaining for the week other than Kraft.

"We have one for Thursday," a syndicate source said.

He added that "Kraft will overshadow everything" when it prices.

Rumors continued to float on Wednesday that another large sale from telecommunications giant AT&T Inc. could be coming, although no one had solid details.

The increase in bond deals has been welcome news for bored syndicate desks.

"It's nice to have something to do," One syndicate source said.

Florida Power sells mortgage bonds

Electric company Florida Power & Light priced $500 million of 5.69% 30-year first mortgage bonds early in the afternoon at 110 bps over Treasuries.

Bookrunners were Bank of America Merrill Lynch, Citigroup Global Markets, Credit Suisse Securities and Mitsubishi UFJ Securities.

Proceeds will be added to FPL's general funds and then used to repay short-term borrowings and for general corporate purposes.

The subsidiary of FPL Group, Inc. is based in Juno Beach, Fla.

COE Development Bank sells five-year

Council of Europe Development Bank priced $1 billion of 2.75% five-year notes on Wednesday at Treasuries plus 38.25 basis points, according to an FWP filing with the Securities and Exchange Commission.

The deal was announced on Tuesday and went overnight to allow investors in Asia in on the books.

The notes (Aaa/AAA/AAA) priced at 99.898 to yield 2.772%. They are non-callable.

BNP Paribas Securities, Credit Suisse Securities, HSBC Securities and Morgan Stanley ran the books.

The issuer grants loans to member states to promote social programs and is based in Paris.

Elm Road offers senior notes

Wisconsin Electric Power Co. subsidiary Elm Road Generating Station Supercritical priced $530 million of senior unsecured notes in two tranches, a source close to the sale said.

Full terms were not available at press time.

A $255 million tranche of 5.209% 20-year notes priced at 150 bps over Treasuries.

The second tranche was $275 million in 6.09% 30-year bonds priced at Treasuries plus 145 bps.

Wells Fargo Securities was among the bookrunners.

Proceeds are being used to refinance intercompany debt incurred by Wisconsin Electric Power to finance the construction of a coal generating facility.

The issuer is based in Milwaukee.

Building Materials gives split-rated deal terms

Building Materials Corp. of America sold $250 million of 7% split-rated 10-year first lien senior secured notes at par to yield 7%, an investment-grade market source said.

The notes (Ba3/BBB-) priced at a spread of Treasuries plus 337 bps.

A road show started Jan. 29 and was set to end on Feb. 2.

The notes had initial guidance of a 7.25% yield. Price talk was revised on Monday to a yield of 7% to 7.25%, a market source said, with the deal pricing at the tightest end.

Deutsche Bank Securities, Citigroup Global Markets and Wells Fargo Securities were bookrunners, with the sale being run off high-yield desks.

The issuer does business as GAF Materials and deals primarily with roofing and shingles. It is based in Wayne, N.J.

Florida Power hits secondary

Traders saw Florida Power & Light's new notes make it to the secondary by Wednesday afternoon.

Florida Power & Light priced $500 million of 30-year mortgage bonds at Treasuries plus 110 bps earlier in the day.

"They just wrapped around the issue - the call was 112 bps, 108 bps," one source said.

PNC firms in trading

PNC's $2 billion of new senior notes tightened in secondary markets, according to a trader.

The 3.625% notes due 2015, which priced at Treasuries plus 125 bps, were seen tightening to 123 bps bid, 121 bps offered, the trader said.

The 5.125% notes due 2020 priced at Treasuries plus 145 bps and by late Wednesday, one trader was "seeing [the notes at] 144 bps."

Kraft moves ahead of deal

Kraft Foods' outstanding notes saw trading a day ahead of the food manufacturer's plan to price $4 billion of senior notes in four tranches.

"Kraft was very busy headed into the deal," a trader said.

Kraft's 6.125% notes due 2018 tightened 7 bps to 145 bps over, while Kraft's 7% notes due 2037 also firmed 1 bps to 184 bps over.

Telecoms active

Elsewhere in the secondary markets, AT&T, Inc.'s outstanding notes were active, according to a source.

The 5.8% notes due 2019 were 5 bps wider to 125 bps over.

Meanwhile, the 6.55% bonds due 2039 from the Dallas-based communications company tightened 10 basis points to 155 bps over Treasuries.

Existing notes from New York-based Verizon Communications Inc. also saw activity in secondary markets.

The 6.35% notes due 2019 tightened 7 bps to 120 bps or, while the 6.25% notes due 2037 tightened 5 bps to 155 bps over, a source reported.

Dow tightens

Meanwhile, Dow paper was busy on Wednesday, one trader said.

For example, Dow Chemical's 8.55% notes due 2019 tightened to 206 bps from 215 bps on Tuesday.

Also, late in the day, Dow's 7.6% notes maturing in 2014 widened 5 bps to 155 bps over.

Midland, Mich.-based Dow Chemical manufactures and sells chemicals, plastics, agricultural products and other services across the globe.

Financials firm

Also on Wednesday, high-grade trading in the financial sector heated up, according to sources.

For example, Bank of America's 6.5% notes due 2016 firmed 9 bps to 128 bps over.

The Charlotte, N.C.-based bank's remaining outstanding notes, which include the 7.375% notes due 2014 and the 7.625% notes due 2019, were unchanged to 1 bp tighter, according to a source.

Meanwhile, Citigroup's notes also tightened on the day.

The 6.375% notes due 2014 were seen firmer at 240 bps on Wednesday from 251 bps the day before, a source reported.

In addition, New York-based Citigroup's 5.5% notes due 2014 tightened 5 bps to 242 bps over.

General Electric Capital Corp.'s 5.625% notes due 2018 tightened 11 bps to 160 bps over.

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

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