Thermo Fisher dives into market; more deals expected Wednesday; Comcast, JPMorgan stronger

By Andrea Heisinger and Cristal Cody

New York, Aug. 9 - The high-grade bond market barely paused in the wake of the U.S. credit rating downgrade by Standard & Poor's. Thermo Fisher Scientific Inc. became the first issuer to sell new debt since the move.

There were no deals on Monday as the market absorbed the downgrade news, and Thermo Fisher announced its sale on Tuesday morning at $2.1 billion in two parts.

The $1 billion of five-year notes and $1.1 billion of notes due 2022 were sold to help pay for the acquisition of Swedish company Phadia for about $3.5 billion.

On top of the new deal, market sources said they were also waiting for an announcement from the Federal Reserve's Federal Open Market Committee meeting and watching the stock market see-saw up and down as it had the day before.

"It was all over again," a syndicate source said. "We saw everything open more positive, and then after the Fed they went down."

Fed chairman Ben Bernanke announced that while key interest rates will be held near zero for the next two years, there won't be a third round of quantitative easing as some had hoped. The stock market sank and then rebounded following the announcement and ended the day up.

The Thermo Fisher sale went well as investors looked upon corporate bonds as a safer investment than stocks.

"It got done with a huge concession - but they got it done," said a syndicate source away from the trade.

The scientific instrument company last sold bonds in a $2.2 billion deal in three tranches on Feb. 14. The new paper priced at significantly higher spreads and with higher coupons than six months ago. The previous sale had 3.2% five-year notes priced at 85 basis points over Treasuries and 4.5% 10-year notes sold at Treasuries plus 95 bps.

Tuesday's sale could pave the way for more on Wednesday, sources said. The market tone ended on a more positive note than it began, and investor demand remains strong.

"We did some calls today," one source said. "[We] could have one to two [deals] tomorrow."

Overall trading volume jumped about 80% to nearly $16 billion on Tuesday.

The only new deal of the day traded tighter in the secondary markets, with bonds overall improved from Monday's losses after the Fed statement, traders said.

The Markit CDX Series 15 North American Investment Grade index firmed 5 bps to a spread of 110 bps, according to Markit Group Ltd.

Bonds were "kind of all over the place ever since the Fed decision," one trader said. "It's a mixed bag. Some stuff's better 5 to 10 basis points in [cable and telecom bonds]."

Comcast Corp.'s bonds firmed 10 bps to 15 bps in trading.

Financials also recovered, going out 10 bps to 15 bps better, a trader said.

"It was as good as 25 better this morning," the trader said.

Treasuries rallied in the late afternoon on the Fed announcement. The 10-year benchmark note yield fell to 2.24% from 2.31%. The 30-year bond yield dropped 4 bps to 3.61%.

Thermo Fisher's gamble

Thermo Fisher Scientific sold $2.1 billion of senior notes (A3/A/A-) in two tranches, said a market source away from the deal.

The $1 billion of 2.25% five-year notes were priced at a spread of Treasuries plus 115 bps. They were sold at the tight end of guidance in the 120 bps area.

A second part was $1.1 billion of 3.6% 10-year notes priced at 130 bps over Treasuries. The notes were sold at the low end of price talk in the 135 bps area.

Active bookrunners were Barclays Capital Inc., Bank of America Merrill Lynch and J.P. Morgan Securities LLC.

Proceeds are being used to fund part of the cash consideration payable for the acquisition of Phadia, estimated at about $3.5 billion, and for general corporate purposes.

There is a change-of-control put if the Phadia acquisition is not done prior to Dec. 31.

Thermo Fisher Scientific's bonds firmed after pricing in the secondary market, traders said.

Soon after the sale, the notes due 2016 firmed to 111 bps bid, 108 bps offered and tightened going out at 107 bps bid.

Also, the tranche of notes due 2021 firmed to 127 bps bid, 124 bps offered and later to 124 bps bid, 119 bps offered, traders said.

The scientific instrument company is based in Waltham, Mass.

JPMorgan tightens

JPMorgan Chase & Co.'s new 4.35% 10-year notes (Aa3/A+/AA-) were among the financial paper that firmed on Tuesday, trading about 15 bps better, a trader said.

The notes due 2021 firmed to 220 bps bid, 210 bps offered. On Monday, the notes had widened to 235 bps bid.

JPMorgan sold the notes at 175 bps plus Treasuries on Wednesday.

The financial services company is based in New York.

Comcast stronger

Comcast's 6.4% bonds due 2040 traded 10 bps better on Tuesday at 165 bps bid, 255 bps offered.

The 5.15% notes due 2020 traded 15 bps better at 88 bps bid, 78 bps offered.

The telecommunications company is based in Philadelphia.

Bank, broker CDSs improve

Banks and brokerage credit default swaps costs declined on Tuesday, showing an increased investor confidence in the sector after Monday's blowout, a source said.

Bank of America firmed 20 bps to 280, 290. Citigroup tightened 10 bps to 200, 210.

On the brokerage side, Morgan Stanley's CDS traded 20 bps tighter at 258, 268. Merrill Lynch was seen 10 bps tighter at 305, 325. JPMorgan also went out 10 bps tighter.

Paul Deckelman contributed to this review

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