Nationwide, Hanover, UBS break deal drought; financials gain in trading, Walgreen wider again

By Andrea Heisinger and Cristal Cody

New York, Feb. 18 - New issues returned to the investment-grade bond market on Thursday with deals from Nationwide Building Society, Hanover Insurance Group, Inc. and UBS AG, Stamford branch - all of which were announced and priced relatively late in the day.

They are the first bond sales in the market since Feb. 11.

England's Nationwide Building Society priced the largest offering of the day, at $1.5 billion in two tranches. The sale consisted of $700 million of five-year notes and $800 million of 10-year notes.

The holding company for Hanover Insurance sold $200 million of 10-year notes soon after announcing the sale in a filing with the Securities and Exchange Commission.

The third deal of the day was from UBS AG, and was announced and priced late in the session. The Stamford branch of the Swiss financial services company sold $2 billion in two-year floating-rate senior bank notes.

All three of Thursday's sales "came in a rush," a source who worked on two of them said.

Other syndicate desks have reported that issuers are hesitant to enter the market to due to unsavory conditions lately. Some have postponed or abandoned plans for new deals, sources said.

Spreads have widened recently, as have new issue concessions, a syndicate source said. This is partly due to worries about the economic health of countries in the European Union, such as Greece, and also because of continued weakness in investment-grade bonds.

The secondary market picked up on Thursday with the financial sector tightening by as much as 15 basis points, according to sources.

"It's been busy today," one trader said.

The CDX Series 13 North American high-grade index was seen 3 bps firmer at a mid bid-asked spread level of 93 bps on Thursday, according to a source.

Overall Trace volume held steady but increased only 2% to about $13.7 billion, one source said.

Meanwhile, others took the day to focus on agency bonds instead of corporate high-grade debt.

"It's more active," one trader said. "It's just because there's not a lot going on in corporates. We haven't had many sellers and no one's been buying. Everyone's waiting on the new issue pipeline to come back so it's definitely been busier in agencies."

On Thursday, Treasuries continued to weaken, with the yield on the 10-year benchmark Treasury note at 3.80% from 3.73% the day before. Also, the yield on the 30-year Treasury bond eased 3 bps to 4.73%.

Looking at the secondary high-grade market, Nationwide Building Society's new notes firmed, while Bank of America Corp., Goldman Sachs Group Inc. and the financial sector overall continued to tighten a second day, sources said Thursday.

Also in trading, Walgreen Co.'s outstanding notes continued to widen a day after the drugstore chain said it would acquire Duane Reade Holdings, Inc. for $1.075 billion in cash and debt.

Nationwide sells two tranches

Nationwide Building Society priced $1.5 billion of notes (Aa3/A+) in two tranches late in the afternoon, a source close to the sale said.

The $700 million of 4.65% five-year notes priced at a spread of 225 bps over Treasuries.

An $800 million tranche of 6.25% 10-year notes priced at 250 bps over Treasuries.

Both priced in line with or tighter than talk, the source said. Guidance was in the "mid-200s, 250 bps area," she said, with the five-year tranche pricing tighter than that.

Bank of America Merrill Lynch, Barclays Capital and Morgan Stanley & Co. ran the books.

The banking and financial services company is based in Swindon, England.

Hanover prices small deal

Hanover Insurance Group priced $200 million of 7.5% 10-year senior unsecured notes (Baa3/BBB-/BBB-) by mid-afternoon at Treasuries plus 375 bps, an informed source said.

When asked about price talk, the source that there was essentially none because "it went really fast."

Barclays Capital and Goldman Sachs & Co. were bookrunners.

Proceeds will be used for general corporate purposes and for working capital.

The holding company for property and casualty insurance provider Hanover Insurance Co. is based in Worcester, Mass.

Market jumps back to life

After several days with no new deals coming into the investment-grade market, there was a virtual windfall of two for the day, both announced and priced in the afternoon.

In the morning, it was unclear if conditions would hold up enough to get deals priced with a reasonable new issue concession, a market source said.

"Spreads have been out, and that's a consideration for these [issuers]," the source said.

A source away from all of the day's deals said he had "no idea" why they were all jumping into the market in a rush.

"We're not having daily conversations with any [issuers]," the source said. A lot of companies are still filing their 10-K annual reports with the Securities and Exchange Commission, he said, adding that "we should have some action in the next couple of weeks."

The sudden rush of deals in the afternoon did not seem to have anything to do with an announcement by the Federal Reserve that it would raise its discount rate on emergency loans for banks from 0.5% to 0.75%. This increase will take effect on Friday.

Two of the day's three sales were already announced and priced by the time that news came out, but the UBS sale seemed to come out of the woodwork at almost the same time as the Fed rate hike hit.

New offerings have been so sluggish lately that it's likely some companies simply need to get debt sold, a market source said.

Apart from a few busy desks that handled the day's sales, others were left looking ahead to the coming week, which looked promising in terms of a decent calendar volume.

UBS offers $2 billion in floaters

UBS AG, Stamford branch sold $2 billion of two-year floating-rate senior bank notes (Aa3/A+/A-) late in the day at par to yield three-month Libor plus 110 bps, a market source away from the sale said. It was priced well after 5 p.m. ET.

The bookrunner was UBS Investment Bank.

The financial services company is based in Basel and Zurich, Switzerland.

Nationwide firms

Nationwide Building Society's $1.5 billion of new notes tightened in secondary trading late Thursday, according to a source.

The company priced the notes due 2015 at Treasuries plus 225 bps and the notes due 2020 at Treasuries plus 250 bps earlier in the day.

The five-year notes were 5 bps tighter in secondary trading, according to a source.

"They came in at 225 and were offered at 220 bps."

In addition, the 10-year notes were seen firming in trading and "were offered at 245 bps," the source said.

Financials tighten

Meanwhile, the financial sector continued to gain steam on Thursday.

"Generically, it's from 5 to 10 bps better and probably 15 bps better," a source said. "We were probably 20 to 30 bps better in some of the go-go stuff from Tuesday. The benchmark Goldman, the benchmark Bank of America - all the benchmark paper's anywhere from 5 to 10 bps tighter."

The firming trend was attributed to a rally in equities.

"Stocks have been holding in. There's just a better tone in the market," a trader said.

For example, Charlotte, N.C.-based Bank of America's notes due 2019 tightened to 215 bps bid, 210 bps offered from 235 bps bid, 225 bps offered on Wednesday, a source said.

Also, New York-based Goldman Sachs' notes due 2019 firmed on Thursday.

"Yesterday they started the day at 190 bps bid, 180 bps offered and they're at 175 bps bid, 170 bps offered today," a trader said.

Walgreen's widens

Also in Thursday's market action, Walgreen's notes moved out a second day after the company said it would acquire Duane Reade for $1.075 billion, which includes the assumption of about $457 million of debt and operating leases.

Standard & Poor's said Thursday that it placed Deerfield, Ill.-based Walgreen's A+ corporate credit rating on CreditWatch with negative implications based on the costs related to the deal.

"Walgreen's bonds - I heard they were 30 bps wider" earlier in the day, a source told Prospect News. But it was "all odd-lot trading. Someone may be offering bonds but it's probably an expensive offer because they're not trading."

The 5.25% notes due 2019 were seen widening to 75 bps offered on Thursday, a source said.

"They are wider. They were way out early this morning."

On Wednesday, the notes were quoted at 85 bps bid, 67 bps offered, wider from the 75 bps bid, 65 bps offered on Tuesday.

In addition, Walgreen's outstanding 4.875% notes due 2013, which were not seen in secondary trading on Wednesday, saw activity on Thursday.

"I saw them offered today at 67 bps," one source said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.