Northrop Grumman, Northern Trust tap market; trading volume light, financial bonds weaken

By Andrea Heisinger

New York, Nov. 1 - Northrop Grumman Corp. and Northern Trust Corp. each tapped the high-grade bond market on Monday ahead of big events throughout the week.

Northern Trust was first to price what one source in the market called a "straightforward deal" where the size did not grow and the notes sold in line with guidance. The investment and asset-management company offered $500 million of 10-year notes.

Northrop Grumman was a more complicated deal that priced later in the day. The $1.5 billion of bonds came in three tranches maturing in 2015, 2020 and 2040. All were priced in line with or tighter than talk.

Issuers for the week must navigate a minefield of events like Election Day, the Federal Reserve meeting on Wednesday and a jobs report coming out Friday.

Companies are still likely to tap the market, a source said, partly because of low rates and also because they may need financing for note redemption or other needs.

On the secondary side, both of the day's new bonds from Northern Trust and Northrop moved tighter after pricing. Colgate-Palmolive Co. and Arrow Electronics, Inc. each saw their Friday-priced paper improve. One tranche of the Arrow Electronics bonds was quoted slightly wider on the bid side.

Recently priced notes from Rio Tinto Finance (USA) Ltd. and Travelers Cos., Inc. also continued to actively trade.

A trader said that H&R Block Inc. bonds that had "tanked" over the past 10 days were "slowly grinding tighter."

"They caught a bid and were up a point," the trader said.

Overall trading volume was "on the light side" at about $6.7 billion, a source said. He added that there is not much action expected for Tuesday or Wednesday until it's "Fed time."

"It was very slow," a market source said of the secondary, "the slowest I've seen in a long time. It was a better tone, but there's nothing happening."

Financial bonds were generally weaker by the end of the day, a trader in that sector said.

Treasury yields were unchanged to wider from the previous day. Longer bonds like the 10-year were wider by 3 bps at 2.63%. The 30-year bond was out 4 bps to 4.01%.

Northrop's oversubscribed sale

Northrop Grumman sold $1.5 billion of senior notes (Baa2/BBB/BBB+) in three tranches late in the day, a source close to the trade said.

The $500 million of 1.85% five-year notes priced at a spread of 70 bps over Treasuries. The notes were priced in line with guidance in the 70 bps area.

A $700 million tranche of 3.5%notes due 2021 sold at Treasuries plus 90 bps. It was sold in line with guidance in the 90 bps area, the source said.

The third tranche of $300 million of 5.05% 10-year notes priced at a spread of Treasuries plus 105 bps. These notes priced tighter than whispered talk of 120 bps and in line with revised guidance of 120 bps area.

There was "north of $4 billion" on the books for the whole deal, a source said. At guidance, there was about $1.5 billion in interest on the five-year notes, $1.5 billion on the 10-year notes and the 30-year tranche was "by far the most oversubscribed," the source said.

There is normally more interest in the shorter tranches, but this issue was a little unique.

"There was some liability with this issuer with the tender offer," she said. "I think some people just felt safer going for the longer maturity."

Citigroup Global Markets Inc., J.P. Morgan Securities LLC and RBS Securities Inc. were active bookrunners.

Proceeds are being used for general corporate purposes, including debt repayment, pension plan funding, acquisitions, share repurchases and working capital. Debt repayment may include $750 million of 7.125% notes due Feb. 15, 2011 and any tendered notes.

The bonds priced too late to hit the secondary, a trader said. Two of the bonds did tighten in the gray market. The five-year note was 5 bps better on the offer side at 65 bps, and the notes due 2021 were between 5 and 10 bps tighter on the offer side at 83 bps.

The global security company is based in Los Angeles.

Data to slow week's issuance

It was only Monday, but syndicate sources and others in the high-grade market were already predicting a slower week because of Election Day, the Fed meeting and, as one source said, "a bunch of data coming out."

"I think it should be fairly quiet," the source said. "A lot of issuers will probably stand down until maybe the 15th because that's the first uninterrupted week we'll have. A lot of people are just not coming into the market."

She was referring to the bond market closing for Veteran's Day on Nov. 11 in the coming week.

Another source said that "it should be fairly quiet" in the next couple of days as desks and potential issuers wait to see how elections turn out and whether there is any big announcement out of the Federal Reserve Federal Open Market Committee Meeting that concludes Wednesday afternoon.

Earlier predictions at the end of the previous week were for $15 billion to $20 billion of new deals.

Northern Trust's 10-year

Northern Trust sold $500 million of 3.45% 10-year senior notes (A1/AA-/AA-) to yield Treasuries plus 83 bps, a source away from the sale said in early afternoon.

The notes priced in line with talk in the 83 bps area.

Active bookrunners were Bank of America Merrill Lynch and Morgan Stanley & Co. Inc.

Proceeds are being used for general corporate purposes.

Once the bonds were released for trading, they tightened on the offer side, a trader said. They were quoted at an offer of 78 bps, with no bid.

Later in the day, a source quoted the bonds at about 3 bps better with a bid of 82 bps and offer of 80 bps.

The financial holding company for asset and investment management services is based in Chicago.

Colgate notes contract

Two new bonds sold by Colgate-Palmolive were improved in next-day trading Monday, sources said. There was "not much activity" in them, according to one source.

The shorter-dated tranche of 1.375% notes due 2015 was priced at 38 bps over Treasuries. It was quoted at 34 bps bid, 31 bps offered and later at 33 bps bid, 28 bps offered.

A 2.95% bond due 2020 was sold at 53 bps over Treasuries and tightened 5 bps or more. A trader quoted the bond at 48 bps bid, 46 bps offered.

Arrow Electronics trade mixed

Debt sold in two tranches on Friday by Arrow Electronics was mixed in trading, with the shorter-dated tranche performing well.

A trader quoted the 3.375% notes due 2015 at 223 bps bid, 216 bps offered. They were priced at Treasuries plus 230 bps.

The second tranche of 5.125% notes due 2021 was priced at 255 bps over Treasuries. The notes were at first unchanged at an offer of 255, a source said. Later another source said they were being bid at 259 bps and offered at 254 bps.

Recent bonds stay active

Three bonds from two different issuers priced in the previous week were among the most active in the high-grade secondary as of early afternoon, a source said.

Two tranches of the Rio Tinto Finance (USA) deal were active in trading. The 1.875% notes due 2015 priced at 68 bps and were seen trading around that at 67 bps.

The 3.5% notes due 2020 from that same issue were also active and quoted holding in tighter than their price of 93 bps over Treasuries. They were quoted at 86 bps.

The longest maturity from the Travelers Cos. deal was also popular. The 5.35% notes due 2040 were quoted at 130 bps, or about 5 bps tighter than their price of 135 bps over Treasuries.

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