RBS Citizens, EIB, Stadshypotek sell as corporate deals disappear; bank, broker CDS costs rise

By Aleesia Forni and Andrea Heisinger

New York, Sept. 25 - Issuance from corporate names quieted down in the high-grade bond market on Tuesday with some sovereigns taking their place.

RBS Citizens Financial Group Inc., which is a unit of the Royal Bank of Scotland Group plc, sold $350 million of 10-year subordinated notes after the trade was upsized from $300 million.

Sweden's Stadshypotek AB sold $1.5 billion of seven-year covered bonds.

The European Investment Bank sold $3 billion of five-year notes by late morning in the New York session.

Germany's KfW announced plans for a sale of 10-year notes. The size will be at least $500 million, with pricing on Wednesday.

The new issue pipeline kept humming in the preferred stock market as DTE Energy Co. sold $200 million of $25-par notes due 2062. The size of the offering was increased from $150 million.

Gabelli Equity Trust Inc. sold $105 million of perpetual preferreds in an upsized deal.

The start of the Yom Kippur holiday at sundown on Tuesday meant many were on vacation, which partly explained the steep drop in high-grade deals from Monday.

Spreads widened overall in the market and a syndicate source reported that "the tone was weaker this morning."

"Europe was a little soft earlier today," a market source said late in the day. "I think there were also people not wanting to price ahead of a holiday."

There are a couple of deals on tap for Thursday, but Wednesday is expected to be a quiet day for corporates.

The Markit CDX Series 18 North American Investment Grade index rose 4 bps to a spread of 102 bps on Thursday.

Investment-grade bank and brokerage credit default swaps costs rose on Tuesday.

Banks were wider. Bank of America's CDS costs widened 10 bps to 180 bps bid, 190 bps offered. Citi's CDS costs were also 10 bps wider at 180 bps bid, 190 bps offered. J.P. Morgan's CDS costs widened 3 bps to 123 bps bid, 128 bps offered. Wells Fargo's CDS costs rose 2 bps to 88 bps bid, 93 bps offered.

Brokers were also wider. Merrill Lynch's CDS costs were 15 bps wider at 175 bps bid, 185 bps offered. Morgan Stanley's CDS costs widened 12 bps to 252 bps bid, 262 bps offered. Goldman Sachs' CDS costs rose 10 bps to 195 bps bid, 205 bps offered.

RBS Citizens upsizes

RBS Citizens Financial Group sold an upsized $350 million of 4.15% 10-year subordinated notes (/BBB+/BBB) at a spread of Treasuries plus 250 bps, a market source said.

The size of the deal was increased from $300 million.

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

The U.S. banking unit of the Royal Bank of Scotland Group plc is based in Providence, R.I.

Stadshypotek prices tight

Sweden's Stadshypotek priced $1.5 billion of 1.875% seven-year covered bonds at mid-swaps plus 72 bps, or Treasuries plus 85.625 bps, a market source said.

The bonds are backed by prime Swedish assets and residential mortgages.

The size was talked at $1 billion. The bonds (Aaa/) were initially talked in the mid-swaps plus 70 bps area, then guidance was revised to the mid-swaps plus 72 bps area where they ended up pricing.

Bank of America Merrill Lynch, Barclays and Deutsche Bank Securities Inc. were bookrunners.

The mortgage company and subsidiary of Svenska Handelsbanken AB is based in Stockholm.

EIB sells $3 billion

The European Investment Bank has priced a $3 billion offering of 1% five-year notes to yield mid-swaps plus 20 bps, or Treasuries plus 38.4 bps, according to a source away from the trade and an FWP with the Securities and Exchange Commission.

The notes (Aaa/AAA/AAA) priced in line with talk in the mid-swaps plus 20 bps area. There was a do-not-grow provision on the deal size.

Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC were bookrunners.

The lender for the European Union is based in Kirchberg, Luxembourg.

KfW plans 10-years

KfW announced plans for a benchmark-size sale of 10-year notes, an informed source said.

The notes (Aaa/AAA/AAA) are expected to be priced on Wednesday.

Bookrunners are Barclays, BNP Paribas Securities Corp. and UBS Securities LLC.

The notes from the Frankfurt-based development bank are guaranteed by the Republic of Germany.

DTE's $25-par deal

DTE Energy sold $200 million of 5.25% $25-par 2012 series C junior subordinated debentures due Dec. 1, 2062, a trader said.

The deal priced shortly before the close on Tuesday and came at the low end of talk. It was upsized from $150 million.

DTE will apply to list the notes on the New York Stock Exchange.

Bank of America Merrill Lynch, Citigroup Global Markets Inc., UBS Securities LLC and Wells Fargo Securities LLC were bookrunners.

Proceeds will be used to pay a portion of the purchase price for a portfolio of on-site energy projects, primarily located in the Midwest, under a purchase agreement in July 2012; to repay short-term borrowings, which have an average interest rate of approximately 0.40% and maturities under 30 days; and for general corporate purposes.

DTE is a Detroit-based utility company.

Gabelli prices preferreds

Gabelli Equity Trust priced $105 million 5% series H cumulative perpetual preferred stock, the company said in a press release.

The deal came at the tight end of talk and was upsized from $50 million.

Gabelli will apply to list the preferreds on the New York Stock Exchange under the symbol "GABPH.".

Bank of America Merrill Lynch was bookrunner.

Proceeds will be used to redeem the 6.2% series F cumulative preferreds. Any remaining funds could be used for further preferred redemptions.

Gabelli is a non-diversified, closed-end management investment company based in Rye, N.Y.

Stephanie N. Rotondo contributed to this review

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