Raytheon prices $2 billion in debt; Mutual of Omaha sells $300 million in surplus notes

By Sheri Kasprzak and Paul Deckelman

New York, Oct. 13 - Primary activity in the investment-grade bond market was steady on Wednesday, led by $2 billion in new issuance from defense contractor Raytheon Inc.

The Waltham, Mass., company sold the notes in three tranches - a $400 million tranche of 1.625% five-year notes, a $1 billion tranche of 3.125% 10-year notes and a $600 million tranche of 4.875% 30-year notes.

The notes (Baa1/A-/A-) were sold through bookrunners Citigroup Global Markets Inc., Credit Suisse and UBS Investment Bank.

The five-year notes were priced at 99.562 to yield 1.717% for a 60 bps spread over Treasuries; the 10-year notes priced at 99.465 to yield 3.188%, or 77 bps spread over Treasuries; and the 30-year notes priced at 99.361 to yield 4.916%, or 110 bps spread over Treasuries.

Proceeds will be used for general corporate purposes, including working capital, capital expenditures, debt service requirements and the repayment of outstanding debt, repurchases of shares of common stock under the company's share repurchase program, discretionary pension contributions or other business initiatives, including possible acquisitions.

Mutual of Omaha prices

In other primary news, the Mutual of Omaha Insurance Co. priced $300 million in 30-year surplus notes on Wednesday via Rule 144A, according to a pricing sheet.

The 6.95% notes were priced at 96.635 to yield 7.226%. The spread came in at 340 bps over Treasuries.

The notes (A2/A/) are non-callable.

Goldman Sachs & Co. and J.P. Morgan Securities LLC were the joint bookrunners.

Proceeds will be used for general corporate purposes.

Post Apartments sells notes

Elsewhere, Post Properties Inc. subsidiary Post Apartment Homes, LP brought to market $150 million in seven-year senior unsecured notes, according to a term sheet.

The notes were sold through joint bookrunners JPMorgan, Wells Fargo Securities LLC and Deutsche Bank Securities Inc.

The notes (Baa3/BBB-/) are due Oct. 15, 2017 and have a 4.75% coupon priced at 99.859 to yield 4.774%. The spread came in at 300 bps over Treasuries. The notes feature a make-whole call at 45 bps over Treasuries.

Post intends to use the proceeds to repay in full its $100.5 million in 7.7% senior notes, which are due Dec. 20, 2010, as well as to reduce amounts under its revolving credit facilities. The remainder will be used for general corporate purposes.

Based in Atlanta, Post Properties develops apartment and condominium communities.

Bank, Broker CDS higher

A trader who watches the credit-default swaps market said that the cost of protecting holders of big-bank paper against a possible event of default was anywhere from unchanged to 15 bps higher, depending on the name, reflecting lessened investor confidence in the sector. He saw CDS costs for Bank of America's paper 15 bps higher.

He also saw the cost of protecting holders of investment-bank bonds anywhere from unchanged to 13 bps higher, with the CDS contracts for legacy bonds of Merrill Lynch - now a unit of Bank of America - 13 bps higher.

HG guys buying HY

A high-yield trader said that "people are clearly buying into the story of low defaults, the Fed keeping low funds rates, and low Treasury rates, and this is a decent alternative for yields.

"You definitely get the impression, particularly in the BB part of the world, that you're seeing some traditional high-grade guys step over into high yield. That's definitely helped drive the train here a little bit as well," the trader said.

In commenting on the relatively low high-grade yields, which make junk seem more attractive by comparison, he noted that with the five-year Treasury notes yielding 1.12%, "if you're 200 bps off that, that puts you around 3% - and that might even be a little wide." He noted that the new Raytheon five-year deal, which priced at 60 bps off Treasuries, was yielding 1.717%.

"Clearly, there is some yield gain to be had, still, going into BB paper at a 5% or 6% kind of thing," he said.

Raytheon (Baa1/A-/A-) "is not a credit on the cusp. I'm sure there's more yield somewhere else in high grade than Raytheon - but it illustrates the discrepancy in yields" between high grade and high yield.

J.C. Penney rebounds

J.C. Penney - which trades off the investment grade desks at some shops - "actually came back" on Wednesday after the bonds got clobbered on Tuesday as investors worried about what recent investments made by Pershing Square Capital Management LP and Vornado Realty Trust could mean for the company.

Another trader said that "true junk guys don't seem to be involved in it."

He quoted the Plano, Texas-based retailer's 5.65% notes due 2020 up 0.625 point at the 98 level, on $20 million traded, making it one of the day's more active issues.

However, he saw the 7.65% notes due 2015 down 0.375 point at 108.5 bid.

"About half were down a little bit, and half were up a little bit," he said.

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