Appalachian Power, Province of Manitoba price bonds; new deals dry up; L-3 notes quiet

By Andrea Heisinger and Cristal Cody

New York, May 19 - The high-grade bond market hasn't quite run out of steam yet as Appalachian Power Co. and the Province of Manitoba priced bonds on Wednesday.

American Electric Power unit Appalachian Power sold $300 million of five-year notes not long after the deal was announced. The new 3.4% notes traded nearly 10 bps tighter on the offer side, according to a source.

Manitoba priced its $600 million deal of five-year global bonds around the same time.

Apprehension about the market remained, but there is still a trickle of issuers willing to risk the market to take advantage of good interest rates.

No new deals are known for the rest of the week. One syndicate source said they were out of deals on the week's calendar and added, "We're hearing the same thing."

In the secondary, L-3 Communications Corp.'s 4.75% 10-year senior notes had strong demand after they were sold on Tuesday, but the notes were mostly unchanged in Wednesday's market session, a trader said.

The CDX Series 14 North American high-grade index firmed 4 bps to a mid bid-asked spread level of 114 bps, according to a market source.

Overall Trace volume in the investment-grade market rose about 4% to nearly $11.8 billion, according to a source.

Meanwhile, Treasuries eased on Wednesday as the euro rose after hitting a four-year low earlier the previous session, and the markets weighed the apparent sudden move from Germany to ban naked short selling of some corporate and government debt.

Yields on the two-year note were 5 bps weaker at 0.78. Yields on the 10-year Treasury note eased 2 bps to 3.37%, while yields on the 30-year bond moved out 2 bps to 4.25%.

"The 0.75 area is tough," a trader said. "With CPI, terrible delinquencies and dovish FOMC minutes, "T"s should have been up, but the euro bouncing back a bit and stocks recovering a bit had Treasuries doing the opposite."

The Labor Department said its Consumer Price Index fell 0.1% in April, the first drop since March 2009.

"CPI's numbers are lower than expected - nary a hint of inflation," the trader said.

The year-over-year increase in the core CPI was unchanged in April, which lowered the year-over-year increase in core inflation to 0.9%, the lowest rate since 1966.

Appalachian Power sells $300 million

Appalachian Power priced $300 million of 3.4% five-year senior unsecured notes (Baa2/BBB/BBB) by early afternoon to yield Treasuries plus 137 bps, a source who worked on the sale said.

They priced at the tight end of guidance in the 140 bps area, the source said, with a margin of plus or minus 3 bps.

There was "north of $1 billion" on the books for the sale, he said.

The notes were nearly 10 bps tighter on the offer side in secondary trading, according to a source. They were quoted trading late in the day at 138 bps bid, 128 bps offered.

Bookrunners were Credit Suisse Securities, UBS Investment Bank and Wells Fargo Securities LLC.

Proceeds are being used for general corporate purposes, including funding a construction program, repaying advances from affiliates and replenishing working capital.

The subsidiary of American Electric Power is based in Charleston, W.V.

Soft market still lures issuers

New deals were still present in the high-grade market in the middle of the week, but will likely die down in the next couple of days.

"We're going to see less and less unless the market improves dramatically," a source said. Several pressures have kept some issuers out of the market lately, although attractive prices and interest rates have lured others in.

There haven't been anymore deals announced for the remainder of the week, which is not surprising since every day has been decided based on how the market tone is at the open.

"I think a lot of people are going to stand down for the time being," a source said. "A lot [of issuers] just don't want to risk it."

Manitoba sells global bonds

The Province of Manitoba priced $600 million of 2.625% five-year global bonds (Aa1/AA) by mid afternoon at Treasuries plus 53.6 bps, a market source said.

Bookrunners were Bank of America Merrill Lynch, CIBC World Markets and RBC Capital Markets.

Proceeds are being used for general government programs.

The issuer is based in Winnipeg, Canada.

L-3 unchanged

While demand was strong initially for L-3 Communications' 4.75% senior notes due 2020 when pricing the day before, the notes were mostly unchanged in Wednesday's secondary market, a trader said.

L-3 Communications priced $800 million of the senior notes at Treasuries 138 bps, and the notes were soon trading at 140 bps bid, 137 bps offered late in the day.

"Not much change in L-3," the trader said after the market closed on Wednesday. "Seeing 140, 137."

New York-based L-3 is the sixth largest defense company in the United States.

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