Market heralds return of new bonds as Duke Energy unit, PPL price; spreads widen, PPL flat

By Aleesia Forni and Andrea Heisinger

New York, July 8 - Corporate issuers returned to the high-grade bond market Monday with small sales from Duke Energy Indiana, Inc. and PPL Electric Utilities Corp.

Duke Energy sold $500 million of first mortgage bonds in two tranches. The trade included three-year floating-rate notes and 30-year bonds.

There was about $3 billion in demand on the books for the Duke trade, a source close to it said.

Also in the market with a sale of mortgage bonds was PPL Electric Utilities. The company priced $350 million of a 30-year maturity.

The euro zone was back in the headlines as finance ministers announced the group of countries would make staggered payments to Greece to further its bailout. The payments are contingent on Greece meeting certain conditions by July 19.

Otherwise, some of the recent volatility in the bond market seemed to have dimmed, and after multiple weeks of virtually no new corporate issuance from investment-grade companies, some were eager to tap the market.

"I think we were more stable today," a syndicate source said, adding that Treasury yields had dropped. "We saw some movements [Friday], but nothing big today."

"I would imagine that since we had two [issues] today, we'll see more jump in tomorrow."

Another source said two deals for Tuesday were a possibility, and that Monday's sales could cause others to take a look at how the market opens and participate.

"That's what we're hoping," the source added.

Meanwhile, the Markit CDX North American Investment Grade index was 2 basis points wider compared to Friday's close at a spread of 87 bps.

A secondary market source quoted the new issue from PPL Electric flat, late during Monday's trading.

In another recent deal, a trader at a different desk had seen ITC Holdings Corp.'s two-part deal trading better early Monday.

Investment-grade bank and brokerage credit default swap costs declined on Monday, according to a market source.

Bank of America Corp.'s CDS costs were 4 bps lower at 127 bps bid, 131 bps offered. Citigroup Inc.'s CDS costs declined 1 bp to 119 bps bid, 123 bps offered. JPMorgan Chase & Co.'s CDS costs also declined 1 bp to 97 bid, 101 bps offered. Wells Fargo & Co.'s CDS costs were down 1 bp at 71 bps bid, 76 bps offered.

Merrill Lynch's CDS costs lowered 3 bps to 115 bps bid, 125 bps offered. Morgan Stanley's CDS costs declined 4 bps to 166 bps bid, 171 bps offered. Goldman Sachs Group, Inc.'s CDS costs were down 4 bps at 153 bps bid, 158 bps offered.

Duke Energy's two-part deal

Duke Energy Indiana tapped the market for $500 million of first mortgage bonds (A2/A/) in two parts, an informed source said.

There was $150 million of three-year floating-rate notes priced at par to yield Libor plus 35 bps. Initial talk was in the Libor plus 55 bps area.

A second part was $350 million of 30-year bonds sold at a spread of Treasuries plus 130 bps. Initial whispers were in the 145 bps to 150 bps range over Treasuries.

Bookrunners were Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Scotia Capital (USA) Inc. and Wells Fargo Securities LLC.

Proceeds are being used for general corporate purposes, including repayment at maturity of $400 million of 5% notes due Sept. 15, 2013.

Duke Energy Indiana was last in the U.S. bond market with a $250 million sale of 4.2% 30-year bonds priced at 105 bps over Treasuries on March 12, 2012.

The electric subsidiary of Duke Energy Corp. is based in Plainfield, Ind.

PPL sells long bond

PPL Electric Utilities sold $350 million of 4.75% 30-year first mortgage bonds (A3/A-/) to yield Treasuries plus 115 bps, according to an FWP filing with the Securities and Exchange Commission.

The notes were quoted flat at 115 bps bid, 112 bps offered by a trader on Monday.

Bookrunners were Barclays, Credit Agricole Securities (USA) Inc., Mizuho Securities USA Inc. and Scotia Capital (USA) Inc.

Proceeds are being used for capital expenditures, to fund pension obligations and for other general corporate purposes.

PPL, a utility based in Allentown, Pa., was last in the bond market with a $250 million offering of 10-year notes on Aug. 21, 2012.

ITC Holdings notes firm

In secondary market action, ITC Holdings' $250 million of 4.05% 10-year notes traded 2 bps better at 155 bps bid, 150 bps offered on Monday.

The company sold the notes at a spread of Treasuries plus 155 bps on June 26.

Meanwhile, the company's $300 million tranche of 5.3% 30-year bonds was 1 bp tighter at 175 bps bid, 170 bps offered.

ITC Holdings sold the bonds at a spread of 175 bps over Treasuries.

The power transmission company is based in Novi, Mich.

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