Magellan Midstream, General Dynamics price; new deals strengthen; financial bonds popular

By Andrea Heisinger

New York, June 19 - Bond sales continued to trickle into the high-grade primary market with new issues on Friday from General Dynamics Corp. and Magellan Midstream Partners, LP.

The new supply went against the market assumption that there would be no new deals Friday, following days of a depressed market tone. It was predicted Thursday that any sales left on the table would be held until the coming week.

"They weren't anything big," a source said of Friday's offerings. "Maybe they didn't want to wait until Monday."

The secondary side had a lull, with not much in the way of new industrial deals making their way to trading.

New bonds from General Dynamics and Magellan were both improved once they hit the secondary, a trader said. The recent bond from Capital One Bank did the same a day after pricing.

Corporate spreads were generally wider as Treasury spreads tightened modestly. The 10-year note was in 5 basis points to a yield of 3.77%, while the 30-year bond made a bigger swing and tightened 9 bps.

General Dynamics sells upsized deal

General Dynamics priced an upsized $750 million 1.8% two-year notes Friday to yield Treasuries plus 80 bps.

The size was originally $500 million, a market source said.

The coupon and spread are far lower than most bonds that are not government-guaranteed.

"It's a clean, A-rated industrial name," a source said. "They priced it pretty tight."

Bookrunners were Banc of America Securities LLC, J.P. Morgan Securities Inc. and RBS Securities Inc.

Proceeds are going to fund a portion of the $643 million purchase price for the proposed acquisition of Axsys Technologies, Inc. Any remainder will be used to repay borrowings under a commercial paper program and for other corporate purposes.

The defense industry contractor for aerospace, weaponry, ship building and information technology is based in Fairfax, Va.

Magellan Midstream does small sale

Petroleum pipeline operator Magellan Midstream Partners priced $300 million 6.55% 10-year senior notes to yield Treasuries plus 280 bps.

A source away from the sale reported talk in the low 300 bps area.

Bookrunners were JPMorgan, Banc of America Securities and SunTrust Robinson Humphrey Inc.

Proceeds will be used by the Tulsa, Okla.-based company to repay all borrowings under a revolving credit facility, with the balance for general corporate purposes.

Leftovers to end week

After previous days where the tone was less than stellar, Friday had new deals that were left over.

A source said both Magellan and General Dynamics were expected to price Wednesday or Thursday, but were held back.

"I thought they would go to Monday," he said. "Not that [the market] was better, but they didn't want to wait."

General Dynamics, a defense contractor, got "a stellar level," the source said. "You can't argue with that."

There were not any other sales expected to price Friday - a day that is normally quiet in the summer months.

"Everyone wants to go watch golf," a source said, referring to the U.S. Open tournament happening on Long Island. It was a "slow, typical Friday," he said.

HSBC plans income notes

HSBC USA Inc. is planning further issuance of its income notes, according to an FWP filing with the Securities and Exchange Commission Friday.

The three-year notes will have a coupon of three-month Libor plus 100 bps and coupon floor of 2%. They are set to price July 1.

HSBC Securities (USA) Inc. is the bookrunner.

General Dynamics improves

The new 1.8% 2011 from General Dynamics was slightly better once it hit the secondary market on Friday, a trader said in late afternoon.

The bond priced at 80 bps over Treasuries and was quoted at 78 bps bid, with no offer.

"It's probably tighter than that, but that's the latest I have," the trader said.

Magellan bond in nicely

The new 6.55% due 2019 from petroleum pipeline operator Magellan Midstream Partners tightened between 15 and 20 bps late Friday, a trader in the non-financial sector said.

The paper priced at 280 bps over Treasuries and was quoted at 265 bps bid, 263 bps offered.

Capital One bond gains

The new 8.8% bond from Capital One Bank was more than 20 bps better a day after pricing, a trader said late Friday.

The bond was quoted at 478 bps bid, 473 bps offered, he said, which is in nicely from its price of Treasuries plus 500 bps.

This is a sizable improvement from the level a trader quoted once the bonds were freed for trading late Thursday. They were at 495 bps bid, 490 bps offered, he said.

Lorillard improves

Lorillard Tobacco's 8.125% bond due 2019 was continuing gains from the previous day, a trader said. The bond priced at Treasuries plus 428.9 bps and was at 396 bps bid, 393 bps offered, he said. This was a move in from the 405 bps bid, 395 bps offered at which they were quoted after pricing the previous day.

Financials popular in trading

Outstanding bonds from big financial names like Bank of America Corp. and General Electric Capital Corp. were popular with investors, a trader said.

This is continuing a run where bonds from Citigroup Inc. were on top in the secondary. Friday's bonds were a mix of those backed by the Federal Deposit Insurance Corp. and those that were not.

Bank of America's 7.375% due 2014 was at the top in trading and is a somewhat recent issue. GE Capital's FDIC-backed 1.8% due 2011 came next.

Nordstrom, Citigroup top movers

Outstanding bonds from Nordstrom Inc. and Citigroup Inc. were two of the day's biggest movers as of late Friday, a source said.

Citigroup, which has been heavily traded all week, saw its 5.625% bond due 2012 widen more than 25 bps from the previous week. It was among the banking names, including Bank of America, which was not allowed to pay back Temporary Asset Relief Program money to the government this week. Others such as JPMorgan and Goldman Sachs & Co. were.

Nordstrom's 6.25% due 2018 was nearly 60 bps better than a week ago.

Bank, broker CDS better

Credit default swaps for bank and brokerage names were anywhere from 5 to 15 bps better, a trader said in late afternoon.

Citigroup was 20 bps tighter, while Merrill Lynch came in 10 bps.

Both JPMorgan and Goldman Sachs' CDS tightened 5 bps.

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