3M, Paccar, PEFCO brave market amid cheap borrowing rates; new bonds, financial paper firm

By Andrea Heisinger and Cristal Cody

New York, Sept. 26 - Following a week with virtually no new deals, the high-grade bond market reopened on Monday with a handful of new debt sales.

The tone was better than at the close on Friday, sources said, boosted slightly by the news that European leaders were working on a plan to aid Greece in its debt crisis and impending default. The Dow was up more than 270 points at the close, which was a turnaround from its drop the previous week.

The most-watched deal of the day was from 3M Co. as the company announced a benchmark sale later in the morning. The Minnesota-based company ended up pricing $1 billion of five-year notes at the low end of price guidance. It was the issuer's first bond sale since 2008.

Paccar Financial Corp. upsized its deal to $400 million from $350 million of three-year paper on demand from investors.

There was an upsized $300 million sale of 10-year notes from Private Export Funding Corp.

A debt deal was announced by Louisville Gas and Electric Co. early in the day, but it was unclear at press time if the paper was priced. The utility was planning a $250 million sale of 10-year first mortgage bonds, a market source said.

Although the day's deals paved the way for more issuance on Tuesday and beyond, no decisions will be made until companies and syndicate desks see what the day's headlines and market tone at the open are.

"You never know," a syndicate source said in reference to whether any deals were on tap for Tuesday.

"Treasuries aren't as good as they were Thursday and Friday. It depends on how the market looks. The new issue concession is still pretty high."

Overall trading volume was flat at about $10 billion on Monday.

"By and large, it's been positive but there's not huge amounts of volume," a trader said.

The Markit CDX Series 17 North American high-grade index firmed 4 basis points to a spread of 137 bps.

In the secondary market, the new notes from 3M were stronger soon after pricing, traders said.

"It's trading tighter," one source said.

Financial paper also was better on the day.

"The higher stuff is maybe 10 [basis points] tighter, and the lower stuff is 5 tighter," a trader said.

Bank of America Corp.'s 10-year notes were trading "all over the place," a trader said. "The market is still somewhat in disarray still."

Treasuries fell after stocks gained on the day from optimism overseas. The 10-year Treasury note yield rose 7 bps to 1.9%. The 30-year bond yield climbed 9 bps to 2.99%.

3M prices cheaply

3M sold $1 billion of 1.375% five-year notes (Aa2/AA-) in a quick deal to yield 65 bps over Treasuries, an informed source said.

The notes were sold at the tight end of guidance in the 70 bps area, plus or minus 5 bps.

The deal was "well oversubscribed," the informed source said, adding that it had "one of the lower coupons we've seen."

There was no specific reason for the timing of 3M's deal other than to finance an upcoming repayment of debt.

"The market felt good this morning; there were no headlines or anything," the source said. "The window opened, and they probably figured they should take advantage while they could."

Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. and Morgan Stanley & Co., LLC were bookrunners.

Proceeds are going to general corporate purposes, including the repayment of $800 million of 4.5% notes due Nov. 1.

3M's last bond sale was that $800 million of 4.5% notes due 2011 priced on Oct. 27, 2008. Its last sale of five-year paper was done on Aug. 18, 2008 and had a coupon of 4.375% and priced at more than twice the spread of 135 bps.

In the secondary market, the notes were seen slightly firmer at 64 bps bid, 59 bps offered, a trader said.

Another trader also saw the notes around 59 bps.

The consumer and industrial products company is based in Maplewood, Minn.

Paccar upsizes

Paccar Financial sold an upsized $400 million of 1.55% three-year medium-term notes (A1/A+) at a spread of 120 bps over Treasuries, a source close to the trade said.

The notes were priced at the tight end of guidance in the 125 bps area, plus or minus 5 bps. The deal size was increased from $350 million.

"It was well-received," the source said. "It was oversubscribed and [the company] decided to tack more on."

Bookrunners were Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Mitsubishi UFJ Securities (USA), Inc.

The provider of retail and commercial truck financing for Paccar Inc. is based in Bellevue, Wash.

PEFCO's 10-year notes

Private Export Funding sold $250 million of 2.8% notes due 2022 (Aaa/AA+) to yield Treasuries plus 93 bps, an informed source said.

The deal size was increased from the initial announcement of $250 million.

Bookrunners were Bank of America Merrill Lynch and RBS Securities Inc.

The company assists with financing U.S. exports through private capital and is based in New York City.

Bank of America mixed

Bank of America's 5% notes due 2021 ended slightly wider on Monday from Friday levels, but were seen tighter throughout the day, a trader said.

The notes were quoted at 460 bps bid, 450 bps offered on Monday. On Friday, the 10-year notes were quoted at 457 bps.

Bank of America priced the notes on May 10 at 185 bps over.

The financial services company is based in Charlotte, N.C.

CDS costs fall

Bank and brokerage credit default swaps costs were seen mostly lower on Monday, indicating more investor confidence in the financials sector, a source said.

Bank of America's CDS costs were 15 bps lower to 375 bps bid, 385 bps offered. Wells Fargo's CDS costs fell 10 bps to 135 bps bid, 145 bps offered.

On the brokerage side, Goldman Sachs' CDS costs closed 12 bps lower to 280 bps bid, 288 bps offered.

Moving higher, Morgan Stanley's CDS costs rose 5 bps 430 bps bid, 440 bps offered.

Paul Deckelman contributed to this review

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