Network Rail, KfW, KommuneKredit price issues as corporates disappear; longer UPS bonds widen

By Aleesia Forni and Andrea Heisinger

New York, Sept. 26 - Corporate names were overshadowed by sovereigns in the high-grade bond market Wednesday, mostly due to the Yom Kippur holiday.

Deals from some frequent sovereign issuers were priced to take advantage of low borrowing rates and yields in the U.S. market.

Germany's KfW priced $3 billion of 10-year global notes in line with guidance.

Network Rail Infrastructure Finance plc, a government-operated entity from Great Britain, sold $1.25 billion of five-year global notes at talk.

Denmark's KommuneKredit priced $500 million of three-year floating-rate notes.

On the corporate side, Caterpillar Financial Services Corp. reopened an issue of floating-rate notes due in 2014 to add $200 million.

There were some negative headlines about U.S. home sales declining in August that, coupled with a resurgence of unease over the debt crisis in the euro zone and the Jewish holiday, left issuers on the sidelines.

Equities dropped on decreased optimism about the European Central Bank's program of buying government bonds in the euro zone, and Treasury bond yields rose.

Despite this, some companies are still interested in issuing this week.

"I know I've heard of a couple for tomorrow," a market source said later in the day. "Some intentionally waited until later in the week. We'll see what [market] conditions are at the open."

"We have a couple of potentials for tomorrow," a syndicate source said.

The Markit CDX Series 18 North American Investment Grade index was unchanged at a spread of 102 basis points on Wednesday.

In the secondary market, the recent deals from Commonwealth Edison Co. and United Parcel Service Inc. were mixed in trading.

Commonwealth Edison's 30-year mortgage bonds were 1 bp wider, and UPS' five-year notes were unchanged on the day. UPS' 10-year and 30-year bonds widened during the session.

Investment-grade bank and brokerage credit default swap costs rose on the day.

Bank of America's CDS costs were 3 bps wider at 185 bps bid, 190 bps offered. Citi's widened 3 bps to 183 bps bid, 188 bps offered. JPMorgan's widened 2 bps to 125 bps bid, 130 bps offered. Wells Fargo's rose 2 bps to 90 bps bid, 95 bps offered.

Merrill Lynch's CDS costs widened 3 bps to 177 bps bid, 187 bps offered. Morgan Stanley's rose 5 bps to 253 bps bid, 263 bps offered. Goldman Sachs' were 5 bps wider at 200 bps bid, 205 bps offered.

Network Rail's five-year deal

Network Rail Infrastructure Finance priced $1.25 billion of 0.75% five-year global notes at a spread of mid-swaps plus 8 bps, or Treasuries plus 24 bps, a market source said.

The notes (Aaa/AAA/AAA) were sold in line with guidance in the mid-swaps plus 7 bps to 9 bps range.

The sale was done under Rule 144A and Regulation S.

The bookrunners were Bank of America Merrill Lynch, HSBC Securities (USA) Inc., Morgan Stanley & Co. LLC and RBC Capital Markets LLC.

Network Rail was last in the U.S. bond market with a $1.5 billion offering of three-year notes on June 13.

The government-operated rail infrastructure company in Great Britain is based in London.

KfW's $3 billion trade

KfW sold $3 billion of 2% 10-year global notes to yield mid-swaps plus 43 bps, or Treasuries plus 48.2 bps, an informed source said.

The notes (Aaa/AAA/AAA) were announced on Tuesday at a minimum size of $500 million. Pricing was in line with guidance in the mid-swaps plus 43 bps area.

The bookrunners were Barclays, BNP Paribas Securities Corp. and UBS Securities LLC.

The notes from the Frankfurt-based development bank are guaranteed by the Republic of Germany.

Caterpillar Financial reopens

Caterpillar Financial Services reopened its issue of medium-term floating-rate notes due Aug. 27, 2014 to add $200 million, according to FWP filings with the Securities and Exchange Commission.

The notes (A2/A/) were priced at 100.118 with a coupon of Libor plus 15 bps.

Total issuance is $640 million including the $300 million and $140 million priced in two previous deals.

The bookrunners were Barclays, Mitsubishi UFJ Securities (USA) Inc. and J.P. Morgan Securities LLC.

The funding arm of heavy equipment maker Caterpillar is based in Nashville.

KommuneKredit's floaters

KommuneKredit priced $500 million of three-year floating-rate notes (Aaa/AAA/) at par to yield Libor plus 8 bps, a market source said.

The bookrunners were BNP Paribas and Credit Suisse Securities (USA) LLC.

KommuneKredit offers funding and leasing services to municipalities and is based in Copenhagen.

Commonwealth Edison widens

Commonwealth Edison's $350 million offering of 3.8% 30-year first mortgage bonds, series 113, (A3/A-/) were seen 1 bp wider at 93 bps bid, 91 bps offered, a trader said.

The notes sold on Monday at Treasuries plus 92 bps.

ComEd is an electricity provider based in Chicago. It is a subsidiary of Exelon Corp.

UPS bonds mixed

In other trading, UPS' $375 million of 1.125% five-year notes traded flat from Tuesday's levels at 43 bps bid, 40 bps offered following Monday's pricing at Treasuries plus 50 bps.

The $1 billion 2.45% 10-year bonds, which sold with a spread of 75 bps over Treasuries, widened 4 bps to 79 bps bid, 74 bps offered.

A $375 million tranche of 3.625% 30-year bonds traded 1 bp wider at 81 bps bid, 80 bps offered. The notes sold with a spread of 80 bps over Treasuries.

The package delivery and supply chain management company is based in Atlanta.

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