Morning Commentary: Southwest Airlines, Reliance Steel, Florida Power to price notes

By Cristal Cody

Tupelo, Miss., July 28 – High-grade supply is set to remain steady on Tuesday with a handful of issuers marketing bonds following strong volume on Monday, sources report.

Southwest Airlines Co. plans to tap two existing tranches of senior notes (Baa1/BBB/BBB+) over the session.

An add-on to the company’s 5.25% notes due May 4, 2025 is initially talked to price at the Treasuries plus 365 basis points area, while a tap of its 5.125% notes due June 15, 2027 is guided at the 400 bps spread area.

Southwest Airlines first priced $1.25 billion of the five-year notes on April 29 at 99.783 to yield 5.3%.

The seven-year tranche was originally sold in a $1.3 billion offering on June 3 at par to yield a spread of Treasuries plus 453.6 bps.

Meanwhile, Reliance Steel & Aluminum Co. plans to bring $800 million of new senior notes (Baa3/BBB/BBB) in two tranches to the primary market.

Initial price talk on a five-year note is in the Treasuries plus 145 bps area. A 10-year tranche is talked to price in the 200 bps over Treasuries area.

Also on Tuesday, Florida Power & Light Co. is marketing three-year floating-rate notes (A1/A+/AA-) with initial price talk at the Libor plus 55 bps area.

Deal volume already has surpassed market forecasts for the week after more than $16 billion of high-grade issues priced on Monday. Supply so far has been led by AT&T Inc.’s $11 billion five-part offering of senior global notes (Baa2/BBB/A-) priced in the previous session.

About $10 billion to $15 billion of investment-grade supply was expected this week after less than $7 billion of bonds priced last week, according to market sources.

Kinder Morgan mixed

High-grade financial markets were soft at the opening on Tuesday.

The Pimco Investment Grade Corporate Bond index was down 15 cents to 116.71 in early trading.

The iShares iBoxx Investment Grade Corporate Bond ETF declined 6 cents to 137.63.

In the secondary market, Kinder Morgan, Inc.’s $1.25 billion two-tranche offering of senior notes (Baa2/BBB/BBB) that priced on Monday were mixed, a source said.

The company’s $750 million tranche of 2% notes due Feb. 15, 2031 were quoted about 1 bp tighter.

The notes priced at a spread of Treasuries plus 150 bps.

Kinder Morgan’s $500 million tranche of 3.25% notes due Aug. 1, 2050, which priced at a spread of Treasuries plus 210 bps, traded wrapped around issuance.

Overall high-grade corporate secondary market volume totaled $16.86 billion on Monday, according to Trace data.

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