Baker Hughes, National Rural price mega-deals; new Pepsi bonds come 'back to reality'

By Paul Deckelman and Sheri Kasprzak

New York, Oct. 23 - The investment-grade primary market continued to show signs of life Thursday, even in the face of continued uncertainty on Wall Street, as two issuers - Baker Hughes Inc. and National Rural Utilities Cooperative Finance Corp. - each came to market with a billion-dollar megadeal. Baker Hughes' offering was a two-part affair, consisting of five-year and 10-year notes, while National Rural's deal was one tranche of 10-year collateral trust bonds.

Traders said the two deals each priced too late in the session for any meaningful aftermarket participation.

Among recently priced issues, PepsiCo. Inc.'s new 10-year notes, which came on Tuesday and then tightened enormously on Wednesday, gave some of those gains back on Thursday.

Elsewhere in the investment-grade secondary market Thursday, advancing issues led decliners by a narrow margin. Overall market activity, reflected in dollar volumes, was little changed from Wednesday's pace.

Spreads in general were seen tighter, in line with generally higher Treasury yields; for instance, the yield on the benchmark 10-year issue tightened by 8 basis points to 3.67%.

Baker Hughes brings two tranches

Baker Hughes Inc. led a light day for new issues, pricing $1.25 billion in senior notes in two tranches.

In the notes sale, the Houston-based company sold $500 million in five-year notes and $750 million in 10-year notes, said a sell-side source familiar with the deal.

The five-year notes have a 6.5% coupon priced at 99.762 to yield 6.555%. The spread was Treasuries plus 400 bps.

The 10-year notes have a 7.5% coupon priced at 99.444 to yield 7.579% with a spread of Treasuries plus 400 bps.

Banc of America Securities, Citigroup Global Markets and JPMorgan were the joint bookrunners for the sale.

Proceeds will be used to repay the company's $325 million of 6.25% notes due Jan. 15, 2009 and $200 million 6% notes due Feb. 15, 2009. The remainder will be used for general corporate purposes.

National Rural upsizes

Meanwhile National Rural Utilities upsized its offering to $1 billion from an original $500 million of collateral trust bonds.

Deutsche Bank Securities, JPMorgan, Merrill Lynch and RBS Greenwich Capital are the joint bookrunners.

Proceeds from the deal will be used for general corporate purposes, including the repayment of short-term debt.

A trader, speaking just before National Rural's deal came to market late in the afternoon, opined that "every time there's a [big deal]" - he specifically noted the National Rural $1 billion issue" - "it kind of re-prices the market. It's still fairly squishy as far as spreads go. You're really not sure where they do trade them when something comes out." He predicted that National Rural deal would "re-price the market."

"We're just trying to get a feel for what things are worth and it's kind of difficult when things keep getting priced wider and wider."

Pepsi bonds come back to earth

The trader said that new PepsiCo 7.90% notes due 2018 - $2 billion of which had priced late Tuesday at a spread over comparable Treasury paper of 420 bps, and which had then tightened by an amazing roughly 100 bps in Wednesday's market to around the 320s - gave up some of those hefty gains, widening back out to 375 bps bid, 368 bps offered.

"It came way, way in" on Wednesday, he said "and then out and kind of settled in to reality today."

He saw the 6.95% notes due 2014 issued Tuesday by Pepsi unit Bottling Group LLC - $1.3 billion of which had come to market at 435 bps over - trading at around the 410 bps bid, 405 bps offered level Thursday.

Union Pacific unmoved on good numbers

The trader saw Union Pacific Corp.'s 2016 bonds offered at 390 bps over, following the big Omaha, Neb.-based railroad operator's positive quarterly results and guidance for the fourth-quarter and the full year.

Its third-quarter earnings jumped 32% to $703 million or $1.38 per share, beating market expectations of about $1.30 per share.

The company also projected earnings of $1.25 to $1.35 per share for the fourth quarter, a bit higher than the Wall Street consensus of $1.20 to $1.22, while for the full year, Union Pacific sees $4.50 to $4.60 per share of earnings, well above current analyst estimates in the $4.35 to $4.40 range.

Industrial issues trade around

Industrial issues - which had recently taken a back seat to financials, as the corporate bond market fixated on the latest developments involving Morgan Stanley, Goldman Sachs and, while they still traded off investment-grade desks, Lehman Brothers Holdings Inc. and Washington Mutual Inc. - were seen moving back out on the main stage, with the new deals for Pepsi, CSX Transportation, Baker Hughes and National Rural, and with secondary trading in other names.

Among these were Kraft Foods, whose 6.125% notes due 2018 were seen having come in by 35 bps to the 490 level, about the same place where Comcast Corp.'s 5.90% notes due 2016 were seen, about 50 bps tighter.

But the financials are still around. General Electric Capital's 5.45% notes due 2013 were quoted by a source about 40 bps wider at the 270 bps level.

Bank, broker CDS costs widen

A trader said that credit-default swaps costs for protecting big-bank paper widened anywhere from 3 bps to 6 bps.

He said that brokerage/investment-bank CDS costs were 10 bps wider "across the board."

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