Procter & Gamble sells bonds, UDR reopens notes, new deals to increase; P&G gains in secondary

By Andrea Heisinger and Cristal Cody

New York, Feb. 1 - Procter & Gamble Co. got the investment-grade bond market started on Monday with a large sale of short bonds. It was joined by UDR, Inc., which reopened existing bonds.

These deals were about the only action the high-grade primary saw, although more new issues are expected on Tuesday and Wednesday after companies become more confident about the tone.

Procter & Gamble sold $1.25 billion of long two-year bonds due in 2012. The deal comes after the Cincinnati-based company announced positive earnings for the fiscal second quarter.

Real estate investment trust UDR reopened an issue of 5.25% bonds due in 2015 to add $150 million.

Revised price talk was given for a split-rated sale from Building Materials Corp. of America. The deal is expected to price on Tuesday after books close.

The market is expected to see an uptick in business in coming days.

"I think it's just a matter of who jumps in," a market source said. "No one wants to be the first one [to issue]."

With Procter & Gamble's transaction seen as a success, more high-profile names could follow it into the market, sources added.

Secondary high-grade markets were quiet on Monday and trading activity was down, according to sources.

Overall Trace high-grade trading dollar volume fell about 20% to less than $10 billion on Monday, according to a source

Investment-grade trading volume was "fairly light," one source said.

The CDX Series 13 North American high-grade index was tighter on Monday by 2 basis points at a mid bid-asked spread level of 95 bps, according to a market source.

In addition, Treasury yields eased across the board on Monday.

The yield on the 10-year benchmark Treasury note weakened to 4.56% from 4.49%, while the 30-year Treasury bond's yield eased 7 bps to 3.65%.

Meanwhile in secondary trading, Procter & Gamble's new notes tightened, while an uptick in trading was seen in notes from General Electric Capital Corp. and Goldman Sachs Group Inc.

Procter & Gamble prices short bond

Consumer products company Procter & Gamble sold $1.25 billion of 1.375% notes due in 2012 by late afternoon at 55 basis points over Treasuries.

The sale comes after the company reported fiscal second-quarter earnings on Jan. 29 that beat analyst expectations, with sales of $21 billion showing 6% growth.

Bank of America Merrill Lynch, Deutsche Bank Securities and Goldman Sachs & Co. were bookrunners.

Proceeds are being used for general corporate purposes.

The consumer products company is based in Cincinnati, Ohio.

UDR reopens notes

UDR reopened its issue of 5.25% notes due in 2015 to add $150 million, a source close to the deal said.

The notes priced at a spread of 300 bps over Treasuries.

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

The equity real estate investment trust is based in Highlands Ranch, Colo.

New deals to increase

There is an increase in new bonds expected in coming days following two weeks of light issuance.

A market source said that "it will definitely be busier tomorrow and Wednesday."

Another source confirmed that, and added that the lack of deals to start the week wasn't due to any adverse market conditions.

"It's just that everyone was waiting for someone to price first," he said.

Procter & Gamble was that company, and its sale was "well received," according to a syndicate source away.

The only sales formally announced are a split-rated one from Building Materials Corp. and a sovereign deal from Asian Development Bank. Both are expected to be sold on Tuesday after books are closed.

The market tone "wasn't good or bad," on Monday, the syndicate source said.

"It was actually pretty hard to tell," he said. "The only [deal] was from P&G, and they're always good."

Building Materials tightens talk

Building Materials Corp. of America gave revised price guidance on Monday for its $250 million sale of split-rated 10-year first lien senior secured notes (Ba3/BBB-) that are expected to price after books close on Tuesday, a market source said.

Revised guidance is for a 7% to 7.25% yield. This is slightly lower than the initial talk of 7.25% given on Jan. 29.

A road show started Jan. 29. The notes are non-callable for five years.

Deutsche Bank Securities, Citigroup Global Markets and Wells Fargo Securities are bookrunners.

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

Procter & Gamble firms

Procter & Gamble's new 1.375% notes due in 2012 tightened in secondary offers on Monday, according to a source.

The $1.25 billion of two-year notes priced at Treasuries plus 55 bps.

"I saw a little bit of flow on them, no bids," one trader said.

The notes were "last offered at Treasuries plus 53 bps."

Goldman Sachs wider

The "two most active bonds today" were General Electric Capital's notes due 2020 and Goldman Sachs' notes due 2019, according to a source.

New York-based Goldman Sachs' 7.5% nine-year notes had "lots of activity but not much change in spreads," the source said.

Early on Monday, the notes were quoted by one source at 170 bps over Treasuries.

The notes were seen widening late Monday to 167 bps bid, 162 bps offered from 160 bps over Treasuries on Friday, a trader said.

GE Capital active

GE Capital's 5.5% 10-year notes also provided the "same story" on Monday in lots of activity but little transformation, the source said.

"Spreads are barely changed."

The notes were wider on Monday at 199 bps bid, 194 bps offered from 196 over Treasuries on Friday.

One source saw the notes in early trading Monday at 178 bps.

GE Capital, a Fairfield, Conn.-based company that provides financing for General Electric Corp., priced the notes in early January at Treasuries plus 180 bps.

Bank CDS rally

A trader who watches the credit default swaps market said that the cost of insuring holders of big-bank bonds against a possible event of default decreased by between 5 bps and 11 bps, reflecting better investor sentiment toward the sector.

He also saw the CDS costs for major brokerage house bonds likewise tighten by between 4 bps and 7 bps.

Motorola paper moves around

A split-rated issue which saw some trading Monday was Motorola Inc.'s 6.625% bonds due 2037 (Baa3/BB+/BBB-).

A junk trader said that about $15 million of the bonds changed hands on Monday, at anywhere between 88.125 and 88.25, which he called down maybe ¼ point from its most recent previous levels, which he said were from the last time that he saw it traded, in mid-January.

"It's something we don't see that often on our desk," he said, "but there were some pretty good-sized trades today" between those 88.125-88.25 parameters.

Another junk trader who also saw the 6.625s generating about $15 million of trades, including some from nominally high yield accounts, said that "it doesn't look like there was a lot of trading." He explained that "because it has a BBB on one side, they report [to Trace] under the investment-grade rules, so they give you the sizes a little differently."

He said that rather than a lot of round-lot trades of $1 million or over, there really were three trades of $5 million, all in that 88.125 area. "Somebody bought them there, somebody sold them there, and then there was a trade between dealers at 88.125. So it doesn't look like there was a lot of activity - just that they traded in bigger lots."

There was no fresh news that might explain the activity out on the Schaumburg, Ill.-based electronics company, which is principally involved in making mobile phones, telephone handsets and other communications gear.

Boston Scientific off on big lawsuit settlement

A junk trader saw "a lot of" Boston Scientific Corp.'s split-rated (Ba1/BBB/BB-) bonds trading on Monday as the Natick, Mass.-based medical devices maker announced a nearly $1.73 billion settlement of some of its ongoing patent litigation with Johnson & Johnson. Boston Scientific will pay J&J $1 billion immediately, with the remaining $725 million due next January. The settlement of three patent disputes over Boston Scientific's drug-coated stents used in vascular and heart surgery, which dated all the way back to 2003, avoids the risks of an even bigger award against the company in jury trials which were scheduled to begin later this month.

He said that the 6% notes due 2020 were mostly trading between 100.5 and 101, off from Friday, when round lots of the bonds were trading between 101 and 101.5.

A market source at another desk estimated that about $12 million of the bonds had changed hands by the close, and saw the 6% issue down about a point on the day at just under 100.5, or about 235 basis points over Treasuries - a roughly 20 bps widening.

Boston Scientific priced $850 million of those bonds at 99.031 to yield 6.129% , or 262.5 bps over Treasuries, on Dec. 10, as part of a $2 billion, split-rated three-tranche offering which also included $850 million of five-year notes and $300 million of 30-year bonds.

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