High-grade issuers flood primary on low yields as cash-rich investors buy; bonds edge up

By Andrea Heisinger and Cristal Cody

New York, Aug. 10 - Jitters in equities pushed investors into high-grade bonds on Wednesday as new deals flooded the market in volume not seen in weeks.

Nearly all of the deals were multi-tranche and came from high-profile names like Berkshire Hathaway Inc., Procter & Gamble Co., WellPoint, Inc. and Enterprise Products Operating LLC.

Smaller offerings were priced by Public Service Electric & Gas Co., Dominion Resources, Inc., Baker Hughes Inc. and Transcontinental Gas Pipe Line Co. LLC.

Berkshire Hathaway led the charge for the day as the first sale announced. The holding company ended up pricing $2 billion of notes in three parts that included floating- and fixed-rate notes.

Consumer products company Procter & Gamble also sold $2 billion of debt, but in two tranches. The tranche of three-year notes may have set a record for lowest coupon on a three-year note at 0.7%. One source said that the previous low was set by Wal-Mart Stores Inc. in October of last year, and then tied by Coca-Cola Co. in November 2010, both achieving 0.75%.

Energy transport company Dominion Resources sold $450 million of five-year notes and was the first deal of the day to price.

Baker Hughes was the only deal to be upsized. The oilfield services company sold $750 million after an initial $500 million was increased at the launch. The sale was done under Rule 144A and Regulation S.

There was a $1.25 billion sale in two tranches from Enterprise Products Operating, which is guaranteed by parent company Enterprise Products Partners.

A similarly sized deal was done by Indianapolis-based WellPoint, which sold $1.1 billion in two parts.

Public Service Electric & Gas did a quick $250 million sale of three-year secured notes.

One of the later sales to get done was Transcontinental Gas Pipe Line's $375 million of 30-year bonds. A source away from the offering said that "it wasn't received very well" and that it priced late because of that.

High-grade companies continue to sell debt despite renewed fears about a domestic recession. Worries about the health of French banks also surfaced on Wednesday.

However, record-low yields have balanced out the premiums most names have been paying to price debt in order to fund an acquisition or redeem debt.

"Investors have a lot of cash," said a source who worked on one of the day's sales. "With low yields it pushed everyone in, even though the stocks were looking terrible."

Others agreed that it was nice to have a full calendar of deals for the day.

"It was so great to see all those names this morning," one syndicate source said. "It's good to be busy even if it dries up again."

Another syndicate source commented that "when Berkshire jumps in, you're always going to see more [issuance]."

In the secondary market, the new bonds from Dominion Resources, Berkshire Hathaway, Procter & Gamble and WellPoint edged tighter. Enterprise Products' notes due 2022 widened in trading.

The Markit CDX Series 16 North American high-grade index eased 5 basis points to a spread of 115 bps on Wednesday, according to Markit Group Ltd.

Overall trading volume ended the day at about $15 billion.

Treasuries made strong gains on Wednesday. The 10-year note yield fell to 2.1% from 2.24%. The 30-year bond yield dropped 10 bps to 3.51%.

Berkshire tests market

Berkshire Hathaway priced $2 billion of senior notes (Aa2/AA+/A+) in three tranches, a source away from the sale said.

The $750 million of three-year floating-rate notes priced at par to yield three-month Libor plus 70 bps.

A $750 million tranche of 2.2% five-year notes priced at a spread of Treasuries plus 130 bps.

The third part was $500 million of 3.75% 10-year notes sold at 160 bps over Treasuries.

Goldman Sachs & Co. ran the books.

Proceeds are being used for general corporate purposes.

Berkshire Hathaway Inc. last priced bonds in an $8 billion offering in six parts on Feb. 4, 2010. The three-year floaters from that trade were sold at a coupon of Libor plus 43 bps and a 3.2% five-year note at 93 bps over Treasuries. Berkshire Hathaway Finance Corp. last sold debt in a $1.5 billion deal in three parts on Jan. 3. That sale was guaranteed by the parent company.

In the secondary market, the notes due 2016 traded stronger at 122 bps offered. The tranche of notes due 2021 were seen at 159 bps bid, a trader said.

The holding company for various subsidiaries is based in Omaha, Neb.

P&G's two tranches

Procter & Gamble priced $2 billion of notes (Aa3/AA-) in two parts, said a market source.

A separate source said that there was about $6.5 billion in demand on the books for the sale.

A $1 billion tranche of 0.7% three-year notes were priced at a spread of Treasuries plus 52 bps.

The second part was $1 billion of 1.45% five-year notes sold at a spread of Treasuries plus 67 bps. Deutsche Bank Securities Inc., HSBC Securities (USA) Inc. and Morgan Stanley & Co. Inc. were bookrunners.

Proceeds will be used for general corporate purposes, including note redemption.

Procter & Gamble last priced paper in a $1.5 billion deal in two parts on Nov. 15, 2010. The 1.8% five-year notes from that sale were priced at 47 bps over Treasuries.

No secondary trading was seen on the notes due 2014. The notes due 2016 were quoted at 65 bps bid, 60 bps offered, a trader said. Closing out the day, the notes firmed to 64 bps bid, 60 bps offered, another trader said.

The personal products company is based in Cincinnati.

Dominion's quick sale

Dominion Resources sold $450 million of 1.95% five-year senior notes, 2011 series D, (Baa2/A-/BBB+) by early afternoon at a spread of Treasuries plus 105 bps, according to an FWP filing with the Securities and Exchange Commission.

The deal went "fantastic," said a syndicate source close to the deal.

There was about $2.25 billion on the books, and investors stayed in even as it priced at the tight end of guidance in the 105 to 110 bps range, she said.

"We announced it right away, and then got worried as the stock market took a dive," the source said. "Then Berkshire announced their deal and everyone else started coming in. It was amazing how quickly it [the deal] got done."

Bank of America Merrill Lynch, RBS Securities Inc. and Wells Fargo Securities LLC were bookrunners.

Proceeds will be used for general corporate purposes and repayment of short-term debt including commercial paper.

The notes were seen trading tighter at 103 bps bid, 100 bps offered, a trader said.

Another trader saw the notes even better at 99 bps offered late in the day.

The energy transporter and producer is based in Richmond, Va.

Enterprise Products' two parts

Enterprise Products Operating sold $1.25 billion of senior notes (Baa3/BBB-/BBB-) in two maturities late in the day, a source close to the trade said.

A $650 million tranche of 4.05% notes due 2022 were sold at a spread of 200 bps over Treasuries.

The second part was $600 million of 5.7% notes due 2042 that priced at a spread of Treasuries plus 225 bps.

Each of the notes priced in line with guidance in the 200 bps area for the five-year tranche and 225 bps area for the 10-year notes, the source said.

Bookrunners were Barclays Capital Inc., Bank of America Merrill Lynch and Citigroup Global Markets Inc.

Proceeds are being used to temporarily reduce borrowings under a multi-year revolving credit facility and for general corporate purposes. Also, subject to the completion of the Duncan Energy Partners merger, proceeds may also be used to repay debt under Duncan's existing credit facilities.

The debt is guaranteed by Enterprise Products Partners, LP.

In trading, the notes due 2022 widened to 202 bps bid, 197 bps offered late afternoon, a trader said.

The 30-year bonds were seen tighter at 220 bps offered.

The midstream energy company is based in Houston.

WellPoint prices $1.1 billion

Health benefits provider WellPoint priced $1.1 billion of notes (Baa1/A-/A-) in two tranches, said a source who worked on the trade.

A $400 million tranche of 2.375% notes due 2017 were priced at Treasuries plus 155 bps. The tranche priced in the middle of the 150 to 160 bps guidance range, the source said. He added that they priced flat because it was a long five-year maturity.

The $700 million of 3.7%10-year notes sold at a spread of 160 bps over Treasuries. This tranche priced in line with guidance in the 160 bps area.

Active bookrunners were Citigroup Global Markets Inc. and UBS Securities LLC.

Proceeds are being used for working capital and general corporate purposes, including repayment of long-term and short-term debt.

The five-year notes were seen at 154 bps offered, while the tranche of notes due 2021 traded at 158 bps offered in the secondary market, according to traders.

The issuer is based in Indianapolis.

Baker Hughes upsizes

Oilfield services company Baker Hughes priced an upsized $750 million of 3.2% 10-year senior notes (A2/A) at a spread of Treasuries plus 108 bps, an informed source said.

The deal size was increased from $500 million at the launch, they said.

The notes were priced under Rule 144A and Regulation S.

Bank of America Merrill Lynch and J.P. Morgan Securities LLC were bookrunners.

Proceeds are being used to redeem outstanding 6.5% notes due 2013 of which $500 million is outstanding. Any remainder will be used for general corporate purposes.

In trading, the notes due 2021 firmed 1 bp on the bid side to 107 bps bid, 100 bps offered, a trader said. Another trader saw the notes at 106 bps bid late afternoon.

The issuer is based in Houston.

PSE&G brings short bond

Public Service Electric & Gas priced $250 million of 0.85% three-year secured medium-term notes, series G, (A2/A-/A) at 99.941, according to a market source and an FWP filing with the Securities and Exchange Commission.

J.P. Morgan Securities Inc. and RBS Securities Inc. were bookrunners.

Proceeds will be added to the company's general funds and used for general corporate purposes.

The electric and gas utility is based in Newark, N.J.

Transcontinental prices late

Transcontinental Gas Pipe Line brought $375 million of 5.4% 30-year notes to market late in the day under Rule 144A and Regulation S, a source said.

The notes (Baa3/BBB-/BBB) were priced at a spread of Treasuries plus 195 bps.

Bookrunners were BNP Paribas Securities Corp., RBC Capital Markets LLC and RBS Securities Inc.

Proceeds are being used to repay $300 million of 7% notes due on Aug. 15 and any remainder will go towards general corporate purposes.

The interstate natural gas transmission company and subsidiary of Williams Partners LP is based in Tulsa, Okla.

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