Aetna, Yum! Brands price upsized deals; issuance set to slow; corporates flat in secondary

By Andrea Heisinger and Cristal Cody

New York, Aug. 24 - Aetna Inc. and Yum! Brands Inc. each priced notes on an otherwise sleepy Tuesday in the high-grade bond market.

Both deals from the well-known companies were upsized after being announced in late morning and launched in early afternoon.

Health benefits company Aetna sold $750 million in 10-year notes, which was an increase from the initial $500 million.

Yum! Brands priced $350 million in 10-year notes, which was an increase of $50 million from the originally planned size.

Issuance has slowed compared to recent weeks, and it's expected to stay that way until after the Labor Day weekend, a market source said. Companies were mostly coming to the market to latch on to low interest rates in light of either maturing debt or other funding needs.

Secondary traders had a slow day on Tuesday.

The two deals priced on Tuesday firmed in the secondary market, which was flat overall, according to sources.

The Markit CDX Series 14 North American investment-grade index eased 3 basis points to a spread of 112 bps after staying flat for the three previous market sessions, according to Markit Group Ltd.

"It was definitely very light," a source said. "It was a quiet day for sure."

Overall investment-grade Trace volume rose to about $10 billion from $8 billion the previous day, a market source said.

U.S. Treasuries jumped on Tuesday, pushing benchmark yields down as investors shied away from stocks for the safer reliability of government bonds on a flight to safety and liquidity.

"It's been a difficult day for stocks and bonds - a lot of selling," said Robert Stovall, investment strategist at Wood Asset Management Inc.

The yield on the 10-year note fell to 2.49% from 2.6%. The yield on the 30-year bond dropped 10 bps to 3.56%.

Yum! 10-years prices

Yum! Brands sold an upsized $350 million of 3.875% 10-year senior unsecured notes (Baa3/BBB-/BBB-) by mid-afternoon to yield 140 bps over Treasuries, an informed source said.

The deal was initially at $300 million. Initial talk was in the 150 bps area, with the deal pricing at the tight end of revised guidance in the 145 bps area.

"We tried to get the company to do more than $350 million," the informed source said, but they declined to do more than that.

The sale was multiple times oversubscribed, with heavy investor interest partly due to name recognition.

It was the "first BBB- rated [issuer] to price at less than 4% [coupon]," the source said.

Citigroup Global Markets Inc., Goldman Sachs & Co. and J.P. Morgan Securities Inc. were the bookrunners.

Proceeds are going for general corporate purposes, including the repayment of some outstanding debt.

The company last sold bonds in a $500 million two-tranche deal on Aug. 20, 2009. The 5.3% 10-year notes from that sale priced at 187.5 bps over Treasuries.

In the secondary market, the notes due 2020 firmed late afternoon to 139 bps bid, 136 bps offered, according to a trader.

The fast food chain operator is based in Louisville, Ky.

Primary volume slows

Unlike in the high-yield bond market, there has been continued issuance in the investment-grade space, but there are no blockbuster deals expected, sources said late Tuesday.

"I would say it's going to be more small deals if we see any," one market source said.

Both of Tuesday's deals were announced in late morning after go, no-go calls were made by syndicate desks.

"We were waiting to see how the equities opened," a market source said, adding that the tone wasn't the best at the top of the day. "It ended up being a good day for both [Yum! and Aetna]."

A source who worked on one of the day's deals said that there was encouragement from Monday's pricings, including a 100-year bond sale and a tie for a record-low 30-year bond coupon on the San Diego Gas & Electric Co. sale.

Despite that momentum, there "just isn't much out [there] to price," he said.

A syndicate source said that her desk had one to two deals likely pricing tomorrow.

Aetna upsizes to $750 million

Aetna priced an upsized $750 million of 3.95% 10-year senior unsecured notes (Baa1/A-/A-) at Treasuries plus 160 bps, a source close to the sale said.

The size was increased from $500 million.

Barclays Capital Inc., RBS Securities Inc. and UBS Investment Bank ran the books.

Proceeds will be used for general corporate purposes, including repayment of debt.

Aetna's last sale was $500 million of 6.5% 10-year senior notes on Sept. 9, 2008. Those notes priced at a much-higher spread of 295 bps over Treasuries.

Later in the day, the notes due 2020 were seen tightening in the secondary market to 158 bps bid, 154 bps offered, a trader said.

The health care benefits company is based in Hartford, Conn.

Flat secondary market

Most corporate bonds were flat on a weak day in trading, with a couple of exceptions, according to sources.

AT&T, Inc. was one of the standouts, with the company's long-term bonds firming in trading, a source said.

The Dallas-based telecommunications company's 6.55% bonds due 2039 firmed to 155 bps from 163 bps the previous day.

Also making gains in the financial sector was Morgan Stanley's 5.625% notes due 2019, which firmed to 260 bps from 271 bps, the source said.

The financial services firm is based in New York City.

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