Altria Group, P&G, Sunoco, Harley-Davidson, KfW sell bonds, Novartis plans issue

By Andrea Heisinger and Paul Deckelman

New York, Feb. 3 - Bond sales picked up in the investment-grade market Tuesday, with Harley-Davidson Inc., KfW, Procter & Gamble Co., Novartis, Altria Group Inc. and Sunoco Logistics Partners Operations LP pricing deals.

It was an uptick from the lone corporate issue that priced Monday, along with a sovereign. Volume was "back to normal," one market source said.

Drug company Novartis announced a new deal, but pricing was delayed until Wednesday.

In the secondary sphere on Tuesday, a market source said the widely followed CDX Series 11 North American high-grade index was tighter by 6 basis points on the day to a mid bid-asked spread level of 196 bps, versus 202 bps on Monday.

Advancing issues fell behind decliners, by a not-quite five-to-four ratio. Overall market activity, reflected in dollar volumes, jumped 55% from the levels seen on Monday.

Spreads in general were seen tighter, in line with substantially higher Treasury yields; for instance, the yield on the benchmark 10-year issue rose by 16 bps to 2.88%.

While new-deal activity was brisk Tuesday, traders said that the day's issues like Procter & Gamble and Altria Group priced too late in the session for any meaningful aftermarket activity.

They did see continued firming , however, in other recently priced bonds, such as those of Wellpoint Inc. and Cellco Partnership d/b/a/ Verizon Wireless Capital LLC.

Dow Chemical Co.'s bonds were seen sharply wider, and the cost of insuring those bonds against a possible default were also seen wider, after the Midland, Mich.-based chemicals giant reported a wider-than-expected fourth quarter loss

P&G sells $3 billion

In the largest deal of the day, Procter & Gamble and one of its subsidiaries priced $3 billion in three tranches.

The issue had a tranche of floating-rate notes added to it, pricing under Procter & Gamble International Funding SCA and guaranteed by Procter & Gamble Co.

The $750 million of 3.5% six-year notes priced at 99.58 to yield 3.578% with a spread of Treasuries plus 167.5 basis points.

The $1.25 billion of 4.7% 10-year notes priced at 99.824 to yield 4.722% with a spread of Treasuries plus 185 bps.

Both of these tranches priced at the tight end of price talk. It was 170 bps area for the six-year notes and 187.5 bps area for the 10-year notes, a source close to the deal said.

The $1 billion of one-year floating-rate notes priced at par to yield three-month Libor plus 25 bps.

Deutsche Bank Securities Inc., HSBC Securities and J.P. Morgan Securities Inc. were bookrunners.

The deal "went pretty well" a source close to it said.

"It's a name that everyone recognizes," he said. "I think that helps when there are a bunch of issues."

He noted that the two fixed-rate tranches "did well. They were in line with [price] talk."

Altria prices three tranches

Tobacco company Altria Group priced $4.225 billion of notes in three tranches Tuesday.

The issue was upsized, a market source said, to add a tranche of five-year notes.

That $525 million tranche of 7.75% five-year notes priced at a spread of Treasuries plus 587.5 basis points.

A $2.2 billion tranche of 9.25% 10-year notes priced at Treasuries plus 637.5 bps.

And the issue had some spread inversion, with the $1.5 billion of 10.2% 30-year notes pricing at Treasuries plus 550 bps.

Full terms were not available at press time.

Bookrunners were Deutsche Bank Securities Inc., Goldman Sachs & Co. and J.P. Morgan Securities.

KfW sells $2 billion

Germany's KfW priced $2 billion of 1.875% notes due 2011 at 99.886. The issue was announced early Monday and priced overnight.

Goldman Sachs & Co., Merrill Lynch & Co. and RBC Capital Markets were bookrunners.

Harley-Davidson bonds sell early

Motorcycle maker Harley-Davidson sold $600 million 15% five-year senior notes at par to yield 15%.

The notes were split equally between two buyers, Davis Selected Advisors LP and Berkshire Hathaway Inc.

Proceeds are going to fund the liquidity needs of Harley-Davidson Financial Services.

Morgan Stanley & Co., Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and J.P. Morgan Securities ran the books.

"This offering represents an important next step in executing our stated strategy for funding the lending activities of HDFS," Tom Bergmann, chief financial officer of Harley-Davidson and interim president of Harley-Davidson Financial Services (HDFS), said in a press release.

Sunoco unit prices offering

A subsidiary of oil refining company Sunoco, Sunoco Logistics Partners Operations, priced $175 million 8.75% five-year notes at 99.995 to yield 8.75% with a spread of Treasuries plus 690.1 bps.

The bond sale is being used to repay part of a revolving credit facility used to finance an acquisition.

Bookrunners were Citigroup Global Markets and UBS Investment Bank.

Novartis bond sale delayed

Pharmaceutical company Novartis announced a two-tranche deal early Tuesday, but by the end of the day pricing had been pushed to Wednesday morning, a source close to the deal said.

There was no official size given for the deal, but a market source outside the sale said it was $5 billion total. It is being done in five and 10-year tranches.

Banc of America Securities LLC, Citigroup and J.P. Morgan are bookrunners.

Volume to stay steady

A healthy number of deals pricing Tuesday should encourage more companies for Wednesday, a market source said.

He said "some of the lower-rate names got deals done, so that was good."

The day saw a mix of names and ratings, although a large deal from BBB rated Altria Group should encourage other lower-rated companies to enter the market, he said.

"They always seem to come in with these deals and crack the market for others," the source said. He noted they did the same last fall when new deals were dominated by A rated and higher names.

"I think investors are just interested in high-grade paper right now," he said. "Demand has been good and we see a lot of big books."

He was "betting" that some of the added tranches of notes on issues Tuesday were due to investor interest.

"If they can get more [debt] done they're going to do it," he said.

Tuesday deals not trading around

Although there was a flood of new-deal paper Tuesday, secondary traders said late in the day that some deals had not priced or had not been freed for dealings.

One suggested that even the day's earliest deal, announced during the morning - the Harley Davidson issue would likely see no public trading, since half the bonds were given to Berkshire Hathaway and the other half to Davis Selected Advisers and would likely just be put away.

Wellpoint, Verizon deals firm smartly

It was a different story among some of the recently priced issues, which saw brisk trading.

One was Wellpoint, whose 6% notes due 2014 were quoted by a trader at a spread over comparable Treasuries of 415 bps bid, 412 bps offered; the Indianapolis-based managed care provider had priced that $400 million of bonds at 432 bps over on Monday.

Wellpoint's $600 million of 7% notes due 2019, which had also priced at 432 bps over on Monday, were trading at 417 bps bid, 412 bps offered.

The trader meantime saw Verizon Wireless' new 5.25% notes due 2012 having firmed to 370 bps bid, 365 bps offered.

The Basking Ridge, N.J.-based wireless service provider, a joint venture of Verizon Communications Inc. and Vodafone had priced its $500 million of bonds at 405 bps over, although they had firmed slightly to 400 bps bid, 380 bps offered on Monday.

The other half of that deal - the $3.5 billion of 5.50% notes due 2014 - priced Friday at 390 bps over, then firmed to 380 bps bid, 377 bps offered on Monday. They continued to improve Tuesday, closing at 372 bps bid, 367 bps offered, the trader said.

Energy bonds remain firm

Among the recently priced energy issues, a market source saw all three tranches of the ConocoPhillips Co. deal that priced last Thursday more than holding their own, in very busy dealings.

Its 5.75% notes due 2019 were, in fact, the most actively traded investment grade issue, the source said, with over $120 million having changed hands by mid-afternoon. The bonds were bid at 285 bps over, in from 297 bps bid, 293 bps offered seen on Monday. The Houston-based integrated energy company had priced $2.25 billion of the bonds on Jan. 29 at 295 bps over - the same level at which the other two tranches of the $5.5 billion mega-deal priced.

The company's $1.5 billion of 4.75% notes due 2014 traded at 273 bps over on Tuesday, in slightly from 275 bps on Monday and versus 295 bps at the pricing. Over $80 million of the bonds traded on Tuesday.

And its $2.25 billion of 6.50% bonds due 2039 traded at 270 bps over on Tuesday, versus 293 bps on Monday and 295 at the pricing, on over $70 million traded.

Hess Corp.'s $1 billion of 8.125% notes due 2019, which priced at 540 bps over, also last Thursday, were seen Tuesday having firmed to 483 bps over, unchanged from Monday, on volume of over $70 million. However, there was no active trading in the New York-based oil company's other tranche - the $250 million of 7% notes due 2014, which priced that same session at 530 bps over.

Dow down on numbers

Among established names, a market source saw Dow Chemical's 6% notes due 2012 having ballooned out by some 80 bps to around the 700 bps level, after the company reported a loss of $1.55 billion, or $1.68 per share, in the fourth quarter, versus a year-earlier gain of $472 million, or 49 cents per share.

Excluding earnings charges and other unusual one-time costs, the loss was 62 cents per share - far worse than the roughly nickel-per-share profit Wall Street had been expecting.

In the credit default-swaps market, Dow's debt-protection costs were seen having widened out nearly 80 bps to an up-front cost of 619 bps on the five-year CDS contract.

Financials' debt-protection costs rise

Among the financials, a trader said the cost of protecting holders of big-bank bonds against a possible default were 5 bps to 15 bps wider, building on Monday's wider trend.

He saw debt-protection costs for major-brokerage paper unchanged to 5 bps wider, versus Monday's unchanged levels.

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