Microsoft brings three-part deal; issuers look at coming week; State Street firms in trading

By Andrea Heisinger and Cristal Cody

New York, Feb. 3 - Microsoft Corp. returned to the high-grade market on Thursday to sell a three-tranche issue of bonds.

It was the only offering in the market, although one source pointed out that no one was really expecting anything exciting.

"I think we were happy to watch this one and how it priced," he said, referring to whether it would hit record lows.

Microsoft ended up selling $2.25 billion of notes in three maturities. This was half the amount the company sold when it last tapped the market in September.

State Street Corp. gave terms for its $500.1 million remarketing of junior subordinated notes due 2018. The deal priced late on Wednesday.

Desks away from the Microsoft deal were watching it closely - partly because they weren't selling bonds of their own.

It was clear early on that the new bonds probably were not going to hit any lows, a source said.

"With the yields how they are, there's no facility to push spreads lower," the source said.

Desks reported that Friday's primary is expected to be empty as issuers instead wait for the coming week that is said to be more active.

"I think everyone's waiting for next week when Asia's back from holiday," a source said. "It's no fun to be slow, so I think everyone's ready to have it busy again."

Overall investment-grade Trace volume was strong on Thursday, up 15% to more than $17 billion, according to a market source.

"Good volume today," a trader said.

The Markit CDX Series 14 North American investment-grade index firmed 1 basis point to a spread of 82 bps, according to Markit Group Ltd.

"Pretty busy today," another trader said.

The market had a positive tone, while bonds across sectors firmed in secondary trading, sources said.

"Oil and gas is 3 basis points better. Financials 3 to 5 better," a trader said.

Before Microsoft sold its new bonds, the software company's recently issued debt was "off about 3 basis points earlier," a trader said.

Also in secondary trading, State Street's notes firmed more than 10 bps on the bid side, a source said.

Treasuries fell on stronger economic data and as traders set positions ahead of the monthly job data report due on Friday. The 10-year benchmark note yield rose to 3.55% from 3.48%. The 30-year bond yield rose 4 bps to 4.66%.

Microsoft prices tight

Microsoft sold $2.25 billion of senior notes (Aaa/AAA/AA+) in three tranches by late afternoon, an informed source said.

The $750 million of 2.5% five-year notes priced at a spread of 38 bps over Treasuries. They were talked in the 40 bps area and priced at the tight end of that.

A second part was $500 million of 4% 10-year notes priced at Treasuries plus 48 bps. Guidance was in the 50 bps area with the bonds selling at the tight end of that.

The final tranche was $1 billion of 5.3% 30-year bonds sold at a spread of 68 bps over Treasuries. Price guidance was in the 70 bps area, and the bonds sold at the tight end of that.

Bank of America Merrill Lynch and Credit Suisse Securities (USA) LLC were active bookrunners.

Proceeds are being used for general corporate purposes, including working capital, capital expenditures and stock repurchases.

The notes did not set any record lows for spreads or coupons, but they came close on the five-year notes, a source said.

Microsoft last sold bonds in a four-part $4.75 billion deal on Sept. 22. That sale included a 0.875% three-year note priced at Treasuries plus 25 bps, a 1.625% five-year note priced at 40 bps over Treasuries, a 3% 10-year tranche at 55 bps over Treasuries and a 4.5% 30-year bond priced at Treasuries plus 83 bps.

After Thursday's deal priced, in gray market trading, the notes due 2016 were seen at 36 bps bid, 33 bps offered, a trader said. In secondary trading, a source saw the notes at 36 bps bid, 32 bps offered.

The tranche of notes due 2021 traded at 47 bps bid, 45 bps offered in the gray market. The notes were seen tighter in secondary trading wrapped around 44 bps.

Also in the gray markets, the tranche of bonds due 2041 was quoted at 67 bps bid, 65 bps offered. In secondary trading, sources saw the bonds at 66 bps bid, 64 bps offered and then slightly wider at 68 bps bid, 65 bps offered.

The software products and services company is based in Redmond, Wash.

State Street remarkets notes

State Street remarketed $500.1 million of 4.956% junior subordinated debentures due 2018 (A3/BBB+/A-) late on Wednesday at a spread of Treasuries plus 195 bps, according to a press release and FWP filing with the Securities and Exchange Commission.

Goldman Sachs & Co. was the remarketing agent.

According to the press release, the remarketed notes were originally issued as 6.001% junior subordinated debentures due 2042 to State Street Capital Trust III in connection with the offering of the trust's 8.25% fixed-to-floating-rate normal automatic preferred enhanced capital securities (the "Normal APEX") in January 2008.

Proceeds are being used to purchase Treasury securities maturing March 10, 2011, which will be pledged to the trust. When those mature, the trust will use the proceeds to make a final distribution to holders of Normal APEX in respect to the original debentures and to purchase shares of preferred stock from State Street.

In the secondary market, the debentures firmed in the late afternoon to 183 bps bid, a trader said.

The financial holding company is based in Boston.

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