General Mills, FirstMerit, Mohawk price in sleepy start to week; BofA, First American firm

By Aleesia Forni and Andrea Heisinger

New York, Jan. 28 - General Mills, Inc. had the main deal in Monday's investment-grade primary market as the consumer foods maker priced its first bonds since 2011.

General Mill sold $1 billion of senior notes in three tranches with maturities of 2016 and 2043.

FirstMerit Corp. had two offerings in two different markets. The financial services company sold $250 million of 10-year subordinated notes and also priced $200 million of noncumulative perpetual preferred stock.

Split-rated issuer Mohawk Industries, Inc. sold $600 million of 10-year senior notes off the high-grade syndicate desk. The size was increased from $500 million due to about $4 billion of demand on the books, a source said.

There was a $1 billion sale of seven-year paper from the European Bank for Reconstruction and Development.

The week will have to gain some momentum to meet the $15 billion or more bonds projected to be priced this week. Sources said that hitting that figure will depend on whether any large sales from FIG names hit the market.

"It will only take a couple to push us up there," one market source said on Monday.

A syndicate source said some had mostly written this week off as a quiet one until February starts with a bang.

"I think people are just waiting until next week, when it should be busier - or at least that's what we're hearing," the source said.

Tuesday is expected to be similar to Monday in terms of volume, with a few trades being talked about and nothing of much larger size than the General Mills trade.

The Markit CDX Series 18 North American Investment Grade index widened 1 basis point to a spread of 86 bps.

The secondary market saw First American Financial Corp.'s 4.3% notes due 2023 firm 22 bps on Monday.

In another recent deal, KKR Group Finance Co. II LLC's 5.5% 30-year notes were slightly wider during the session.

Bank paper from Bank of America's due 2014 and J.P. Morgan's due 2019 were tighter on the day.

Meanwhile, the 5.625% notes due 2019 from Morgan Stanley weakened compared to Friday's levels.

General Mills prices tight

General Mills priced $1 billion of senior notes (Baa1/BBB+/BBB+) in three tranches, a market source told Prospect News.

There was a $250 million tranche of three-year floating-rate notes sold at par to yield Libor plus 30 bps.

A $250 million tranche of 0.875% three-year notes was sold at a spread of Treasuries plus 45 bps. Price talk was in the 50 bps area.

Finally, there was $500 million of 4.15% 30-year bonds priced at 105 bps over Treasuries. There was price guidance in the 110 bps area.

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

Proceeds are being used to repay a portion of outstanding commercial paper.

General Mills was last in the U.S. bond market with a $1 billion offering of 10-year notes on Nov. 17, 2011.

The maker of consumer food products is based in Minneapolis.

FirstMerit sells 10-years

FirstMerit sold $250 million of 4.35% 10-year subordinated notes (A3/BBB/) to yield Treasuries plus 237.5 bps, a market source said.

Active bookrunners were Bank of America Merrill Lynch and RBC Capital Markets LLC.

Proceeds are being used to purchase from the U.S. Department of the Treasury, in connection with the acquisition of Citizen's Republic Bancorp Inc., that company's outstanding series A cumulative preferred stock issued under the Troubled Asset Relief Program. The shares will be repurchased at the liquidation preference plus accrued interest.

The notes are non-callable unless the Citizen's acquisition is not done on or before June 12 or, at the discretion of the board of directors, no later than Sept. 12, in which case there is a mandatory call on the subordinated notes.

FirstMerit is a financial services company is based in Akron, Ohio.

Mohawk's crossover trade

Mohawk Industries was in the market with an upsized $600 million crossover sale of 3.85% 10-year senior notes priced at 187.5 bps over Treasuries, an informed source said.

The size was increased from $500 million.

The notes (Ba1/BBB-/BBB-) were sold tighter than initial talk in the low-to-mid 200 bps, a source in the high-yield market said. A second source later said guidance had been revised twice more to the 200 bps to 212.5 bps range, and then to the 200 bps area, plus or minus 12.5 bps, at which the bonds were sold at the tight end.

Barclays, Bank of America Merrill Lynch and J.P. Morgan Securities LLC were active bookrunners. Proceeds, along with cash on hand and borrowings under a senior credit facility, are being used to retire substantially all of the debt of Marazzi Group and to pay the cash portion of the$1.5 billion purchase price and transaction expenses incurred in connection with the acquisition of that company.

There is a mandatory call at 101 plus accrued and unpaid interest if the acquisition is not done by Jan. 24, 2014.

Mohawk, a maker of floor covering products, is based in Calhoun, Ga.

EBRD sells $1 billion

The European Bank for Reconstruction and Development sold $1 billion of 1.5% notes due 2020 on Monday at a spread of mid-swaps plus 5 basis points, or Treasuries plus 20.1 bps, a market source said.

The notes (Aaa/AAA/AAA) were sold at 99.496. There is no call option.

Bookrunners were HSBC Securities (USA) Inc., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and RBC Capital Markets LLC.

The lender to banks, businesses and industries is based in London.

FirstMerit's preferreds

FirstMerit priced a $200 million offering of 5.875% series A noncumulative perpetual preferreds, a market source said.

Price talk was around 5.875%, according to a trader at midday.

The trader said he last saw the issue trading at $24.60. As the market closed, another market source said he had not seen any markets since midday, when the securities were bid for at $24.65, with no offers.

"More might be offered there," the trader added at midday. He said the deal's gray market performance thus far was "not too good," remarking that it was a "small name with a pretty tight coupon."

Bank of America Merrill Lynch, RBC Capital Markets LLC, Barclays Capital Inc. and Credit Suisse Securities (USA) Inc. are the joint bookrunning managers.

Each preferred will be issued as a depositary share representing a 1/40th interest.

Proceeds will be used, along with funds from an offering of subordinated debt, to purchase Citizens Republic Bancorp Inc. and its series A cumulative TARP preferreds from the U.S. Department of Treasury.

"I'd be shocked if this thing did well," a market source said, noting that the company's ratings - as well as the ratings of the new issue - held a negative outlook by both Moody's Investors Service and Standard & Poor's.

The agencies had placed the company's ratings on negative watch several months back, after the Akron, Ohio-based bank holding company said it was acquiring Citizens Republic Bancorp Inc.

"The main bank is pretty good," the source said of the company. However, the acquisition will dramatically increase its size.

The source also said that the bank's expense base was "quite higher than it should be."

As such, he remarked that pricing was "aggressive."

FirstMerit has applied to list the new series of preferreds on the New York Stock Exchange under the symbol "FMCP."

FirstMerit is an Akron, Ohio-based bank holding company.

Zion's preferred auction

Zions Bancorporation intends to auction $200 million of series G fixed-to-floating rate noncumulative perpetual preferreds, the company said in a press release.

Zions Direct Inc. will facilitate the auction, which is slated to begin on Wednesday at 9:30 a.m. ET and end Thursday at 3 p.m. ET.

Joint bookrunners are Deutsche Bank Securities Inc., Goldman Sachs & Co. and Zions Direct.

The preferreds will be issued as depositary shares representing a 1/40th interest.

Dividends will be payable quarterly and will be fixed through March 15, 2023. At that time, the rate will begin to float at a rate equal to the fixed rate as determined by the auction process minus the mid-market 10-year swap rate.

Proceeds will be used for general corporate purposes.

The company intends to list the new preferreds on the New York Stock Exchange, under the ticker symbol "ZBPRG."

Zions is a Salt Lake City-based bank holding company.

Morgan Stanley widens

The 5.625% notes from Morgan Stanley due 2019 closed the session 2 bps weaker at 265 bps bid.

The bank sold $3 billion of the notes at 225 bps over Treasuries on Sept. 16, 2009.

Bank of America better

In other trading, Bank of America's 7.375% notes due 2014 firmed 5 bps to 95 bps bid during the session.

The bank priced $3 billion notes due 2014 at Treasuries plus 537.5 bps on May 8, 2009.

J.P. Morgan tighter

The secondary also saw the $3 billion 6.3% issue from J.P. Morgan due 2019 tighten 2 bps to 164 bps bid on Monday.

J.P. Morgan priced the 10-year bonds on April 16, 2009 at 305 bps over Treasuries.

First American firms

First American's $250 million of 4.3% 10-year senior notes was quoted at 228 bps bid, 223 bps offered on Monday.

The Santa Ana, Calif.-based financial services, title insurance and settlement company sold the notes at a spread of Treasuries plus 250 bps on Thursday.

KKR weakens

Friday's $500 million issue of 5.5% 30-year senior notes from KKR Group Finance was quoted 1 bp wider at 246 bps bid, 241 bps offered.

The notes were priced with a spread of 245 bps over Treasuries.

KKR Group Finance is a subsidiary of New York-based KKR & Co. LP.

Stephanie N. Rotondo contributed to this review

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