BAE Systems, Enterprise Products price deals; new paper moves up; financial bonds firmer

By Paul Deckelman and Paul A. Harris

New York, June 1 - BAE Systems Holdings Inc. successfully priced a $1.5 billion two-part offering on Monday. Traders said that when the bonds were freed for secondary trading, both tranches tightened solidly from the respective spreads at which they had priced.

Also pricing - and moving up in the secondary market - was Enterprise Products Operating LLC's upsized offering of three-year notes.

Among the established issues in the secondary arena on Monday, a market source said the CDX Series 12 North American high-grade index tightened by 10 basis points to a mid bid-asked spread level of 129 bps.

Advancing issues - which on Friday had led decliners by a better than two-to-one edge - surrendered most of that bulge on Monday, eking out only a narrow lead.

Overall market activity, reflected in dollar volumes, eased by 2.6% from Friday's levels.

Spreads in general were seen considerably tighter, in line with much higher Treasury yields; for instance, the yield on the benchmark 10-year government note jumped by 21 bps to 3.67%.

Besides the tightening in the new issues, market participants saw notably tighter levels among some of the recently priced deals, including those for financial giants Bank of America Corp., Morgan Stanley and The Travelers Cos. Inc.

The high-grade market did really well on Monday, according to a syndicate banker.

"It continues to grind tighter," the banker said.

"Every deal continues to validate that. Order books have been multiple-times oversubscribed."

BAE Systems brings $1.5 billion

In the primary market BAE Systems priced $1.5 billion of guaranteed notes (Baa2/BBB+) in two tranches on Monday.

The London-based military defense company priced a $500 million tranche of 4.95% five-year notes at a 250 basis points spread to Treasuries, and a $1 billion tranche of 6 3/8% 10-year notes at Treasuries plus 275 bps.

Both tranches came 12.5 bps tighter than price talk: the five-year notes were talked at 262.5 bps and the 10-year notes at 287.5 bps.

The overall deal generated $7.5 billion of orders, according to the source.

Accounts on both sides of the Atlantic played the deal. However, because it was a dollar-denominated deal, participation was skewed toward U.S. accounts, the source added.

Goldman Sachs & Co., JP Morgan and Barclays Capital were joint bookrunners for the Rule 144A deal.

Enterprise upsizes

Elsewhere Enterprise Products priced an upsized $500 million issue of 4.6% senior notes due Aug. 1, 2012 (Baa3/BBB-) at a 312.5 basis points spread to Treasuries, according to market sources.

The deal, which was increased from $300 million, priced on top of price talk.

Barclays Capital, Mizuho, RBS and Scotia Capital were joint bookrunners.

Proceeds will be used to repay the company's $200 million term loan in full, to temporarily pay down its revolver and for general company purposes.

Qatar Telecom lines up dollar deal

Sources also spoke of Qatar Telecom's planned $1.5 billion offering of five- and 10-year bonds (A1/A-/A+), which is expected to price sometime this week.

The five-year bonds were talked in the area of Treasuries plus 425 basis points, while the 10-year bonds were talked in the Treasuries plus 445 bps area.

Barclays, BNP Paribas, Development Bank of Singapore, JPMorgan and RBS will act as bookrunners for the Rule 144A and Regulation S deal.

New BAE bonds better

When the new BAE Systems Holdings bonds were freed for secondary dealings, a trader saw the mega-deal's 6.375% notes due 2019 having tightened to a spread over comparable Treasuries of 240 bps bid, 225 bps offered.

That was in solidly from the 275 bps over level at which the $1 billion of bonds had priced earlier in the session.

The trader also saw the $500 million issue of 4.95% notes due 2014 at 225 bps bid, 218 bps offered. The U.K.-based aerospace company had priced those bonds earlier at 250 bps.

Enterprise trades excellently

The trader also saw Enterprise Products Operating's $500 million of new 4.60% notes due 2012 at a spread of 277 bps bid, 275 bps offered.

The Houston-based mid-stream energy company had priced that issue - upsized from the $300 million originally planned - at 312.5 bps over.

Allegheny, Pride deals quoted higher

Two other issues which were moving actively around-Allegheny Technologies Inc. and Pride International Inc. - continued to trade well above their respective issue prices.

A trader quoted Pittsburgh-based diversified metals producer Allegheny's $350 million offering of 9.375% notes due 2019 at 102¼ bid, 102¾ offered. Those bonds, upsized from $300 million originally, had priced last Wednesday at a spread of 578.5 bps, or 99.204, to yield 9.50%, and then subsequently moved up to 100½ bid, 101 offered, and continued to firm after that initial rise.

He meantime saw Houston-based oilfield services company Pride International's split-rated (Ba1/BBB-) 8½% notes due 2019, $500 million of which priced off the high-grade desks Thursday at 587.5 bps over, or 99.641, to yield 8.533%, trading above 102.

He said that besides the interest in the bonds from the usual high-grade accounts, high yield players were "very familiar" with Pride and had bought the deal, and had also taken positions in the Allegheny offering.

Financial deals firm up

A trader in financial issues said that in his market, "everything was tighter," although he also saw much of the attention that would normally be paid to such issues focused instead on the extraordinary events surrounding the fall of General Motors Corp.

"Things got done - but very sporadically."

He saw Bank of America's 7.625% notes due 2019 at 360 bps bid - well in from the 410 bps over at which the Charlotte, N.C.-based banking giant had priced its $2.5 billion offering of offering of bonds on Thursday.

He also saw Morgan Stanley's $1 billion of 7.30% notes due 2019 at 330 bps bid, 325 bps offered, versus the 360 bps over level at which the New York-based investment bank-turned commercial banking company had priced the bonds on Thursday.

He also saw the company's $500 million of 6% notes due 2014 at around that same 330 bps bid, 325 bps offered level, versus the 360 bps spread at pricing.

The trader further saw the Travelers Cos. offering of 5.90% notes due 2019 at 208 bps bid, 198 bps offered - in from the 225 bps over level at which the New York-based insurance company had priced its $500 million of notes on Thursday.

Even with the distraction to the financial markets from the GM downfall, he said, "we were still grinding tighter, with a pretty good tone to the market."

Bank and broker CDS costs improve

A trader watching the credit-default swaps market saw the cost of protecting the holders of big bank and major brokerage paper tighten by about 5 bps to 10 bps across the board, a sign of improved investor confidence in the sector.

He said that Citigroup Inc.'s CDS costs were about 10 bps tighter at 330 bps bid, 340 bps offered, with investors apparently unfazed by the symbolism of the New York-based banking giant being dropped as a member of the prestigious Dow Jones Industrial Average after 12 years in that select circle, to be replaced by Travelers - a former Citi subsidiary.

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