Rio Tinto, Volkswagen, AIG, BofA, Morgan Stanley sell in strong start to week; banks improve

By Andrea Heisinger and Cristal Cody

New York, March 19 - There was no slow start to issuance in the high-grade bond market for the week as companies piled into the primary on Monday.

Among the larger deals pricing were Rio Tinto Finance (USA) plc, Volkswagen International Finance NV and American International Group, Inc.

Banks continued to sell bonds following the results of Federal Reserve stress tests released on March 13. Bank of America Corp. and Morgan Stanley are the latest to price debt on better sentiment in the sector following 15 of the 19 financials passing that stress test.

San Diego Gas & Electric Co., Northeast Utilities and Canada's Husky Energy Inc. were also in the market.

Volkswagen had one of the largest deals at $3.35 billion in an upsized four tranches. A floating-rate note due 2013 was added to the original three parts.

Rio Tinto sold $2.5 billion of paper in four tranches while AIG priced $2 billion in two maturities.

Bank of America and Morgan Stanley each priced five-year notes with sizes of $1.25 billion and $2 billion, respectively.

San Diego Gas & Electric sold $250 million of 30-year mortgage bonds in a deal with a do-not-grow provision. Husky Energy's $500 million offering of 10-year paper had the same provision.

Northeast Utilities priced $300 million of floaters due 2013.

Borrowing rates have increased from their rock-bottom lows in previous weeks when companies rushed to the market. Despite that, issuers still were looking at the rates as cheap.

When asked if any companies were thinking twice before selling bonds, a syndicate source who worked on some of the day's new deals said, "Not necessarily. There's no hesitation. They're going with it."

The amount of new deals is expected to dip slightly Tuesday.

"Today was kind of a shocker," said one source. "We were thinking $6 [billion] to $9 [billion]. I think we're going to see a little less tomorrow, but we're seeing a couple of things."

Another source also predicted a slowdown, but not too much of one as the week is expected to be frontloaded as far as the number of deals being priced.

The Markit CDX Series 17 North American investment-grade index firmed 4 basis points to a spread of 85 bps on Monday.

"Financial names are holding in pretty good," a trader said.

Bank of America's new notes traded 8 bps tighter in the secondary market, a trader said.

"The whole financial sector has improved markedly in the last couple of months - Bank of America, Morgan Stanley, Goldman," the trader said. "The temporary resolution for the European debt credit has impacted all of our financial names."

Morgan Stanley's new notes were bid at where they came, while it's 5.5% notes due 2021 traded at 329 bps bid on Monday.

"On Friday morning, it was 335 [bps] and a week ago on Monday, it was 398 [bps]," a trader said.

Morgan Stanley sold $1 billion of the notes on Oct. 27 at a spread of 335 bps over Treasuries.

Treasuries traded lower on Monday. The benchmark 10-year note yield rose to 2.37% from 2.29%. The 30-year bond yield closed up 8 bps to 3.48%.

Volkswagen sells privately

Amsterdam-based VW International Finance priced $3.35 billion of paper (A3/A-/) in an increased four parts, an informed source said.

A $250 million tranche of floating-rate notes due 2013 was added and priced at par to yield Libor plus 60 bps.

The $850 million of two-year floaters priced at par to yield Libor plus 75 bps.

A $1.25 billion tranche of 1.625% three-year notes sold at a spread of 113 bps over Treasuries. The notes priced at the tight end of guidance in the 115 bps area.

There was a $1 billion tranche of 2.375% five-year paper priced at a spread of Treasuries plus 133 bps. The paper was sold at the tight end of talk in the 135 bps area.

Demand on the books was about $5.25 billion, the informed source said.

Bank of America Merrill Lynch, Citigroup Global Markets Inc., Goldman Sachs & Co. and Morgan Stanley & Co. LLC were bookrunners.

The deal was priced under Rule 144A and Regulation S.

VW was last in the U.S. bond market with a $1.75 billion offering of three- and 10-year notes on Aug. 5, 2010. The 1.625% three-year paper sold at 93 bps over Treasuries.

The issuer is an Amsterdam-based financing arm of Wolfsburg, Germany-based automaker Volkswagen AG.

AIG prices $2 billion

American International Group sold $2 billion of notes (Baa1/A-/BBB) in two maturities, a source who worked on the deal said.

There was "north of $3.5 billion" on the books for the trade, the source said.

"It was good quality books," they added.

The $750 million of 3% three-year notes priced at a spread of Treasuries plus 245 bps. The tranche sold at the tight end of price guidance that was 15 bps to 20 bps lower than the five-year note's spread, the source said.

A $1.25 billion tranche of 3.8% five-year paper sold at Treasuries plus 265 bps. The tranche priced tight to talk in the 270 bps area.

Bookrunners were J.P. Morgan Securities LLC, RBS Securities Inc., U.S. Bancorp Investments Inc. and Wells Fargo Securities LLC.

The proceeds are being used to allocate $1.5 billion of existing funds to the Matched Investment Program used to pay down AIA SPV Preferred Interests and in exchange, allocate to the MIP a greater amount of assets.

AIG was last in the market with a $2 billion offering of three- and five-year notes on Sept. 8, 2011. The 4.25% three-year notes priced at 412.5 bps and the 4.875% five-year paper sold at 425 bps.

The insurance company is based in New York City.

Rio Tinto's four tranches

Rio Tinto Finance (USA) sold $2.5 billion of senior notes (A3/A-/) in four parts, a source close to the trade said.

The $500 million of 1.125% three-year notes sold at Treasuries plus 62.5 bps. The notes sold at the low end of guidance in the 65 bps area.

A $500 million tranche of 2% five-year notes priced at 85 bps over Treasuries. The tranche was priced in line with guidance in the 85 bps area.

There was $1 billion of 3.5%10-year notes sold at Treasuries plus 120 bps. The notes sold at the tight end of talk in the 125 bps area.

Finally, a $500 million tranche of 4.75% 30-year bonds priced at a spread of Treasuries plus 137.5 bps. The notes sold in line with talk in the 135 to 140 bps range.

There was roughly $6.5 billion on the books for the offering and demand was skewed more toward the longer maturities, the source said.

Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC were bookrunners.

The deal is guaranteed by parent companies Rio Tinto plc and Rio Tinto Ltd.

The proceeds are being used for general corporate purposes.

Rio Tinto last sold $2 billion of guaranteed senior paper in three parts on Sept. 15, 2011. A 2.25% five-year note from that deal priced at 148 bps over Treasuries and a 3.75% 10-year note at 178 bps.

The mining company is based in Melbourne and London.

Morgan Stanley's $2 billion

Morgan Stanley sold $2 billion of 4.75% five-year senior notes (A2/A-/A) to yield Treasuries plus 360 bps, a source away from the deal said.

Morgan Stanley & Co. LLC ran the books.

Morgan Stanley's last sale of five-year paper was priced on April 26, 2011 with a coupon of 3.8% and spread of 180 bps over Treasuries. The New York City-based financial services company was last in the market with a reopening of 5.5% notes due 2021 to add $1 billion on Oct. 27, 2011.

The 4.75% notes due 2017 traded at 360 bps bid, 355 bps offered in the secondary market, a trader said.

"They're hanging in there," the trader said.

BofA prices five-years

Bank of America priced $1.25 billion of 3.875% five-year notes (Baa1/A-/A) at a spread of Treasuries plus 275 bps, an informed source said.

Bank of America Merrill Lynch was bookrunner.

The bank last priced 3.75% five-year notes at 205 bps over Treasuries as part of a $2.5 billion deal on July 7, 2011. The Charlotte, N.C.-based financial services company was last in the market on March 2 with a $600 million offering of five-year floating-rate notes.

Bank of America's new 3.875% notes due 2017 tightened in trading to 267 bps bid, a trader said.

Husky sells $500 million

Husky Energy sold $500 million of 3.95% 10-year senior notes (Baa2/BBB+/) to yield Treasuries plus 160 bps, a source close to the deal said.

The paper was sold tighter than talk in the 175 bps area, the source said. There was about $2.25 billion in demand on the books.

Bank of America Merrill Lynch, Barclays Capital Inc. and Citigroup Global Markets Inc. ran the books.

The proceeds are being used for general corporate purposes, including purchase, redemption or payment of securities.

Husky last sold notes in the U.S. market in a $1.5 billion deal of five- and 10-year notes on May 6, 2009. The 7.25% 10-year notes were priced at 412.5 bps.

No secondary trading was seen initially in the bonds, traders said.

The petroleum company is based in Calgary, Alta.

San Diego Gas sells 4.3% notes

San Diego Gas & Electric sold $250 million of 4.3% 30-year first mortgage bonds, series MMM, (Aa3/A+/AA-) to yield Treasuries plus 85 bps, a market source said.

Bookrunners were Credit Agricole Securities (USA) Inc., Goldman Sachs & Co., Mitsubishi UFJ Securities International plc and Samuel A. Ramirez & Co. Inc.

The proceeds will become part of the general Treasury funds of the company and used for general working capital purposes, including commercial paper repayment, supporting electric and gas procurement programs and replenishing amounts expended for expansion and betterment of plants.

San Diego Gas last priced $250 million of 3.95% 30-year mortgage bonds on Nov. 14, 2011 at 90 bps over Treasuries.

The electric and natural gas utility is based in San Diego.

NE Utilities floaters

Northeast Utilities sold $300 million of senior floating-rate notes, series A, (Baa2/BBB/BBB) due 2013 at par to yield Libor plus 75 bps, said a source who worked on the trade.

Barclays Capital Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities LLC were bookrunners.

Proceeds are being used to repay $263 million of senior notes, series A, due 2012 at maturity, repay short-term debt including borrowings under a $500 million revolving credit facility and for general corporate purposes.

The electric and natural gas utility is based in Hartford, Conn.

TD notes end flat

In the U.S. secondary market, Toronto-Dominion Bank's 2.375% senior notes due 2016 (Aaa/AA-/) ended the day unchanged from Friday's spread at 69 bps, a market source said.

TD sold $600 million of the notes in a reopening on Nov. 3 at 117 bps plus Treasuries.

The bank and financial services company is based in Toronto.

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