CRH America, PPL Energy Supply price; bank earnings boost likely limited

By Andrea Heisinger and Paul Deckelman

Omaha, July 16 - A bit of good news boosted the investment-grade bond market Wednesday, with issuers like CRH America, Inc. and PPL Energy Supply, LLC taking advantage.

The lift mostly came from the news that Wells Fargo & Co. reported earnings more solid than expected. It is one of a handful of banks, mostly smaller, regional names, announcing earnings this week.

"It definitely helped, but it remains to be seen how long term it will be," a source said of the mid-week tonic the news offered the market.

In the investment-grade secondary market Wednesday, advancing issues continued to trail decliners by about a seven-to-six ratio, while overall market activity, reflected in dollar volumes, climbed nearly 28% from Tuesday's pace.

Spreads in general were seen tighter, in line with sharply higher Treasury yields; for instance, the yield on the benchmark 10-year issue ballooned out by 11 basis points to 3.93%.

The new PPL Energy Supply bonds were seen to have firmed solidly when the issue was freed for secondary dealings.

Among the established issues, financial names were seen mostly stronger, after Wells Fargo & Co. reported better-than-expected numbers and Merrill Lynch & Co. Inc. was reported planning for a multi-billion-dollar asset sale.

Smaller deals

The day's two new issues were smaller in size than what was seen Monday, with the issuers also being lower-rated companies.

Dublin, Ireland-based CRH America priced $650 million of 8.125% 10-year notes at 99.963 to yield 8.131% with a spread of Treasuries plus 420 bps.

The issue was originally announced at two tranches in a preliminary prospectus filed with the Securities and Exchange Commission, but a source close the deal said it was always in one tranche.

The notes priced at the tight end of price talk of the 425 bps area.

Active bookrunners were Citigroup Global Markets Inc. and J.P. Morgan Securities Inc.

PPL Energy at tight end

Also pricing was a $300 million issue of senior notes from PPL Energy Supply.

The 6.3% five-year notes priced at 99.959 to yield 6.31% with a spread of Treasuries plus 315 bps.

This was at the tight end of price talk of 315 to 320 bps, a source close to the issue said.

Citigroup, HSBC Securities, Lehman Brothers Inc. and Wachovia Capital Markets ran the books.

Issuance prospects unclear

A source said it was anyone's guess whether more issuers would seize on Wednesday's positive tone and issue anything Thursday.

"It depends on the market, really, right?" a source said when asked about upcoming issuance.

"It's back to a day-to-day status."

Levels on new issues are back to somewhat normal, a source said, with both of Wednesday's deals pricing at the tight end of price talk. This was significant, based on the companies' credit ratings, he said.

The day was a bright spot in a recently troubled market.

"It was pretty good," a market source said. "I don't know. We'll see if the rally sticks in equities. It didn't really rally as much in CDS, but it's a positive thing when equities rally like that."

It's possible some more industrial and utility names could issue Thursday, but that's the end of the issuance window for the week, a source said.

"If the open is bad tomorrow, it could erase whatever gain we got today," he said.

New PPL bonds tighten up

A trader said that the new PPL Energy Supply 6.30% notes due 2013 tightened to 305 bps bid, 300 bps offered when the bonds were freed for secondary activity, in from the 315 bps spread versus comparable Treasuries at which the $300 million issue had priced earlier in the session.

The new CRH America $650 million issue of 8 1/8% notes due 2018, which came at 420 bps over Treasuries, came too late in the session for any meaningful aftermarket dealings.

Financials seen stronger

A trader said that the financials sector was "better across the board" after Wells Fargo reported better than expected numbers. The San Francisco-based based company - the fifth-biggest U.S. bank - earned $1.75 billion, or 53 cents per share, in the second quarter. While that was down 22% from $2.28 billion, or 67 cents per share, a year earlier, as more customers failed to pay back loans, it beat analysts' expectations of about 50 cents per share in earnings.

"Generically, things were better," he said, -although he saw the company's actually having widened a bit. For instance, he said, "it was strange" its 5.625% notes due 2017 "actually" traded around 260 bps bid, 250 bps offered, "which was a little weaker." However, he noted that "the stock was up a huge amount" and theorized that some holders may have been selling into strength in order to take some profits.

"The tone overall was better, obviously, as you can imagine."

A market source at another desk saw the Wells Fargo 5.25% notes due 2012 widen out by 25 bps on the day to around the 230 bps mark.

On the other hand, another market source did see the company's bonds firm up later in the session, quoting the very actively traded 5.625% bonds - over $85 million had changed hands by late afternoon, far dwarfing the next most busily traded issue - as having come in to a closing level of 205 bps, versus the 260 bps area spread seen earlier. On a dollar-price basis, the Wells Fargo paper was up more than 2¼ points to nearly the 97.5 neighborhood. A source saw Wells Fargo's 7.55% notes due 2010 trading at 222 bps over the two-year Treasury.

Merrill better on sale talk

Also helping the tone among the financials, the first trader said, were news reports indicating that Merrill Lynch has struck a deal to sell its 20% stake in news and data provider Bloomberg LP for at least $4.5 billion. There was no immediate confirmation from the company.

Even without such an affirmation, the trader said, the news "put a little pop in Merrill," with bids lifted by any where from 10 bps to 30 bps on the "knee-jerk reaction" from the market. For instance, he saw the Big Bull's 6.40% notes due 2017 having firmed to bid levels around 415 bps over, from 440 bps pre-news. Another market source saw its 6.05% notes due 2012 having come in by a like amount to 430 bps over.

In the credit-default swaps market, a trader saw debt-protection costs for financial bonds come down on the day, a sign of increased investor confidence in the sector. For instance, he said, CDS costs for big-bank paper were about 5 bps to 15 bps lower, led by Wells Fargo, whose debt-protection costs dropped by 15 bps to 130 bps bid, 140 bps offered.

He saw major brokerage paper CDS costs 5 bps narrower "across the board," with Merrill Lynch's in about 5 bps to 310 bps bid, 325 bps offered.

© 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.