Post-holiday high-grade supply strong; Exxon, GE, Walgreens price; high-grade bonds recover

By Cristal Cody

Tupelo, Miss., April 13 – Investment-grade issuers priced more than $19 billion of bonds on Monday, led by a $9.5 billion five-part offering from Exxon Mobil Corp.

During the session, General Electric Co. priced $6 billion of senior notes in four tranches.

Walgreens Boots Alliance, Inc. sold $1.5 billion of senior notes in two tranches.

Essential Utilities, Inc. brought $1.1 billion of senior notes in two parts to the primary market.

McCormick & Co., Inc. priced $500 million of 10-year senior notes.

Advance Auto Parts, Inc. sold $500 million of 10-year senior notes.

In addition, Massachusetts Mutual Life Insurance Co. priced an upsized $700 million of 30-year surplus notes.

Strong supply of about $25 billion to as much as $50 billion is expected in the high-grade bond market over the week after the long Easter holiday weekend, sources report.

Also, market participants are keeping an eye on possible issuance following first quarter reports due this week from the major U.S. banks.

JPMorgan Chase & Co., Wells Fargo & Co. release earnings results before the market opens on Tuesday. Bank of America Corp., Morgan Stanley, Goldman Sachs Group Inc. and U.S. Bancorp are among the companies that are scheduled to release figures before the market opens Wednesday.

Market tone was mixed over the session.

The Markit CDX North American Investment Grade 33 index eased more than 4 basis points from Thursday to a spread of 85.77 bps on Monday. The index firmed nearly 50 bps last week.

The iShares iBoxx Investment Grade Corporate Bond ETF declined 1.37% over the morning before recovering slightly to end the day 0.97% weaker at 130.55.

The PIMCO Investment Grade Corporate Bond Index ETF edged up 0.33% over the morning and closed up 0.68% at 110.69.

Stock were mixed. The Dow Jones industrial average closed the day off 1.39%, while the Nasdaq finished up 0.48%.

The Federal Reserve’s broadening of its coronavirus-related economic stimulus purchase program to include fallen angels should help, market participants said.

The number of fallen angels is expected to grow with $206 billion of investment-grade bonds eyed for downgrades in 2020, BNP Paribas Securities Corp. analysts said in a note released Monday.

About $350 billion of investment-grade bonds now trade wider than BB spreads, according to the note.

The fallen angel risk will be priced into bonds now, the analysts said.

“Even after last week’s rally, about 175 bp of the BBB credit spread is downgrade risk premium, just below recession levels and 40-50 bp above where it can get to over the medium-term,” the analysts said. “IG credit should not re-test the wides/lows of March 23rd even if other risky markets do.”

Since the Fed’s program announcements, high-grade credit spreads “have already nearly normalized down to near-normal recession levels,” BofA Securities, Inc. analysts said in a note released Monday.

High-grade corporate bonds spreads have retraced 43% of the spread widening from the tights on Feb. 19 to the wides on March 23, the analysts said.

Media, telecommunications and bank paper have retraced the most, while REITs have continued to widen, the analysts said.

In secondary trading on Monday, high-grade bonds were mostly better, a market source said.

Charter Communications, Inc.’s 4.8% senior secured notes due March 1, 2050 (Ba1/BBB-/BBB-) have recovered from the wides seen on March 20.

The notes were quoted slightly better on the day at 116.53 and about 4.5 bps tighter at a spread in the 247.5 bps interpolated area, compared to where the notes traded in mid-March at 86.63 and a spread in the 419 bps interpolated area.

Charter priced a $1.3 billion add-on to the issue on Dec. 2 at 101.964 to yield 4.677% and a spread of Treasuries plus 240 bps.

The notes traded in January with a 107 handle and at the 227 bps bid area.

Charter first priced the issue in a $1.5 billion offering on Oct. 15, 2019 at 99.436 to yield 4.836% and a spread of Treasuries plus 260 bps.

The notes were issued through subsidiaries Charter Communications Operating, LLC and Charter Communications Operating Capital Corp.

Exxon Mobil prices $9.5 billion

Exxon Mobil priced $9.5 billion of notes (Aa1/AA) on Monday in five parts, according to a market source.

A $2.75 billion tranche of 1.571% three-year notes priced at a spread of Treasuries plus 125 bps.

Initial talk was in the Treasuries plus 155 bps area.

Exxon Mobil priced a $1.25 billion add-on to its 2.992% notes due March 19, 2025 at a spread of 140 bps over Treasuries.

The five-year notes were talked at the 165 bps spread area.

The company first sold $1.5 billion of the five-year notes on March 17 at par to yield a spread of 225 bps over Treasuries. The total outstanding is now $2.75 billion.

Exxon Mobil brought $2 billion of 2.61% new notes due Oct. 15, 2030 at a spread of 185 bps over Treasuries.

The long 10-year notes were talked at the 210 bps area.

The company priced a $750 million reopening of its 4.227% notes due March 19, 2040 at a 195 bps over Treasuries spread.

The 20-year tranche was talked at the Treasuries plus 220 bps area.

The 4.227% notes originally priced in the March 17 offering in a $1.25 billion tranche at par to yield a spread of Treasuries plus 250 bps. The total outstanding is now $2 billion.

Also, $2.75 billion of new 3.452% notes due April 15, 2051 priced at a spread of 205 bps over Treasuries.

Initial guidance was in the 220 bps spread area.

BofA Securities, Inc, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC were the bookrunners.

Exxon Mobil is an energy company based in Irving, Texas.

General Electric prices $6 billion

General Electric came by the primary market with $6 billion of senior notes (Baa1/BBB+/BBB) in four tranches on Monday, a source said.

A $1 billion tranche of 3.45% seven-year notes priced at 99.845 to yield 3.475%, or a spread of Treasuries plus 285 bps.

The company sold $1.25 billion of 3.625% 10-year notes at 99.841 to yield 3.644% and with a 290 bps over Treasuries spread.

A $1.5 billion offering of 4.25% 20-year notes came at 99.718 to yield 4.271%, or a spread of 290 bps over Treasuries.

Also, $2.25 billion of 4.35% 30-year notes priced at 99.65 to yield 4.371% and with a Treasuries plus 300 bps spread.

All four tranches were initially talked to price in the Treasuries plus 375 bps area.

BofA Securities, J.P. Morgan and Morgan Stanley & Co. LLC were the active bookrunners. BNP Paribas Securities Corp., Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. were passive lead managers.

GE is a Fairfield, Conn.-based industrial manufacturer.

Walgreens prices $1.5 billion

Walgreens priced a $1.5 billion two-part offering of senior notes (Baa2/BBB/BBB-) during the session, according to a market source and an FWP filing with the Securities and Exchange Commission.

A $500 million tranche of 3.2% 10-year notes was sold at 99.992 to yield 3.201%, or a spread of Treasuries plus 235 bps, versus talk in the 287.5 bps area.

Walgreens priced $1 billion of 4.1% 30-year notes at par to yield a Treasuries plus 270 bps spread.

Initial price talk was in the 300 bps over Treasuries area.

J.P. Morgan, Mizuho Securities USA Inc., SMBC Nikko Securities America Inc., Wells Fargo Securities LLC and HSBC Securities (USA) Inc. were the bookrunners.

Walgreens is a Deerfield, Ill.-based drugstore chain.

Essential Utilities brings $1.1 billion

Essential Utilities sold $1.1 billion of senior notes (Baa2/A-/) in two parts on Monday, according to a market source and an FWP filing.

A $500 million tranche of 2.704% 10-year notes priced at par to yield a spread of Treasuries plus 195 bps.

The company sold $600 million of 3.351% 30-year notes at par to yield a 195 bps over Treasuries spread.

Both tranches were talked to price in the Treasuries plus 237.5 bps area.

PNC Capital Markets LLC and RBC Capital Markets, LLC were the bookrunners.

The company, formerly known as Aqua America, Inc., is a Bryn Mawr, Pa.-based water utility.

McCormick sells notes

Also, McCormick priced $500 million of 2.5% 10-year senior notes (Baa2/BBB/) on Monday at 99.658 to yield 2.539% and a spread of Treasuries plus 180 bps, according to a market source and an FWP filing.

The notes were talked to price in the Treasuries plus 225 bps area.

BofA Securities, SunTrust Robinson Humphrey Inc., Wells Fargo, BNP Paribas and U.S. Bancorp Investments, Inc. were the bookrunners.

McCormick is a spice company based in Sparks, Md.

AutoZone sells $500 million

Meanwhile, Advance Auto Parts priced $500 million of 3.9% 10-year senior notes (Baa2/BBB-/) at a spread of Treasuries plus 320 bps, according to a market source and a press release.

Initial guidance was in the Treasuries plus 337.5 bps area.

BofA Securities, J.P. Morgan and SunTrust Robinson Humphrey Inc. were the bookrunners of the Rule 144A and Regulation S private offering.

Advance Auto is a Roanoke, Va.-based specialty retailer of automotive aftermarket parts, accessories, batteries and maintenance items.

Massachusetts Mutual prints

In addition, Massachusetts Mutual Life Insurance priced an upsized $700 million of 3.375% 30-year surplus notes (A2/AA-/AA-) on Monday at a spread of 200 bps over Treasuries, according to a market source.

Initial talk was in the Treasuries plus 237.5 bps area.

The deal was upsized from $500 million.

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

Massachusetts Mutual Life Insurance is a Springfield, Mass.-based provider of insurance, retirement and financial products and services.

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