Verizon, Kimberly-Clark, Estee Lauder price as investors flock to bonds; new deals head higher

By Andrea Heisinger and Paul Deckelman

New York, Oct. 30 - The investment-grade primary came to life Thursday with new issues from Verizon Communications Inc., Kimberly-Clark Corp., and Estee Lauder Companies Inc.

This came a day after a large, but delayed issue from Coca-Cola Enterprises Inc., and a Federal Reserve rate cut of 50 basis points.

Neither of these factors hurt the new deals market, but it also likely wasn't the deciding factor in coming to the market Thursday, a source said.

"There were some companies that have been waiting, and the market wasn't terrible Thursday, so they went for it," a source said.

In the investment-grade secondary market Thursday, advancing issues led decliners, though by a margin of less-than seven-to-six. Overall market activity, reflected in dollar volumes, was down 5% from Wednesday's pace.

Spreads in general were seen tighter, in line with higher Treasury yields; for instance, the yield on the benchmark 10-year issue widened out by 11 basis points to 3.96%.

Still more new deals that came to market on Thursday began moving upward right out of the box, such as Estee Lauder, Kimberly Clark and Verizon.

At the same time, other recent new issues also seen continuing to move up included 3M Co. and Coca -Cola Enterprises Inc.

Verizon deal upsized

The issue from Verizon Communications was whispered at $1 billion and up for each of the two tranches, and landed at the final $3.25 billion of 10 and 30-year senior notes, a source close to the deal said.

The $2 billion of 8.75% 10-year notes priced at 99.438 with a spread of Treasuries plus 487.5 bps.

The $1.25 billion of 8.95% 30-year notes priced at 97.483 with a spread of Treasuries plus 487.5 bps.

Citigroup Global Markets Inc., Morgan Stanley, and UBS Investment Bank were lead bookrunners.

The issue went very well, the source said.

"We were pretty ecstatic with the amount of interest we had."

The issue was just over 3.5 times oversubscribed, he said.

Kimberly-Clark prices issue

Consumer products company Kimberly-Clark priced a $500 million deal of 7.5% 10-year notes at 99.634 to yield 7.553% with a spread of Treasuries plus 362.5 bps.

Goldman Sachs & Co. and Morgan Stanley were bookrunners.

The issue came after the company released third-quarter results on Oct. 22, which showed net sales were up 8.2%, but operating profit had decreased from the same time last year.

The bond deal was a success, pricing within price guidance of 5 bps on either side of the 362.5 bps level.

The books were "well oversubscribed" a source said, giving the estimate at close to 10 times over.

"It went very quickly," he said. "It was priced by early afternoon."

Estee Lauder does small deal

Estee Lauder Companies priced $300 million of 7.75% five-year senior notes at 99.932 to yield 7.767% with a spread of Treasuries plus 500 bps.

J.P. Morgan Securities Inc. and Banc of America Securities LLC ran the books.

Optimism back in primary

The primary market seemed somewhat immune from the recent round of negative economic news that came out Thursday, namely the third-quarter gross domestic product numbers releases that showed a 0.3% annual slowdown.

"I think a lot of issuers had already decided yesterday that if the market didn't tank they were pricing today," a source said. "Stuff like that comes out every day."

The ease at which at least the day's two small issues were done added to the optimism that at least temporarily returned to the market.

"It's a good sign for the new issue markets," a source said, referring to the high level the Kimberly-Clark issue was oversubscribed.

He noted that the issues were also performing well in the secondary market, and that it was "encouraging to investors."

The day's issues were part of the backlog that has been building for months as market conditions declined.

"It's hard to say how long these have been out there," a source said. "All of the issues we're seeing right now are backlogged. There are a lot more."

The success of Thursday's issues could lead to more on Friday, although as has been the trend in the past couple of months, no one was willing to guess how many or which companies.

"It's still day to day," a source said. "This is good, though."

Verizon moves up

When the new Verizon Communications bonds were freed for secondary activity, a trader saw the paper firming from the levels at which it priced.

He saw the $2 billion of new 8.75% notes due 2018, which had priced earlier in the session at a spread of 487.5 bps over comparable Treasuries, as having tightened to 470 bps bid, 460 bps offered.

At the same time, the New York-based telecommunications giant's $1.25 billion of new 8.95% bonds due 2039, which had also priced at 487.5 bps over, had come in to 460 bps bid, 470 bps offered.

He said it was just the latest in a string of such deals which came to market too cheaply priced and then proceeded to move up sharply in the secondary.

New Estee, Kimberly deals tighten

The same movement was observed in the day's other two new deals.

Estee Lauder's $300 million of 7.75% notes due 2013, which priced at 500 bps over, quickly tightened to 465 bps when it began aftermarket trading.

And Kimberly-Clark's $500 million of 7.50% notes due 2018, which had priced at 362.5 bps over Treasuries, had moved up to 335 bps bid, 350 bps offered in secondary.

Coca-Cola Enterprises continues tightening

The trader saw Coca-Cola Enterprises 7.375% notes due 2014 at 425 bps bid, 420 bps offered. That was in from trading levels around 432 bps bid, 427 bps offered which the bonds had reached in their initial secondary dealings Wednesday, and was in even further from the 468 bps spread at which the company had priced $1 billion of the bonds earlier Wednesday.

3M steady at tighter levels

He also saw 3M's 4.50% notes due 2011 around the same tighter levels to which they had moved after pricing. The Minnesota-based industrial conglomerate's $800 million of bonds had priced at 275 bps over on Monday, and had then come in over the next two sessions to levels around 240 bps bid, 225 bps offered. Those were the same levels at which they were seen on Thursday.

"They priced them cheap," he said of the underwriters for all of the new deals, "and then they come screaming back in."

Existing Verizon bonds seen mixed

A market source said that several of Verizon's existing issues were seen having improved, even as it shopped its new deal to investors.

Verizon's 7.25% notes due 2010 were being quoted at around the 600 bps level, some 90 bps tighter on the session.

And its 6.90% bonds due 2038 were quoted as tight as 425 bps during the session.

However, its 6.10% notes due 2018 pushed out about 30 bps, to the 460 bps level.

Bank of America better

Among the financial names, Bank of America's 5.25% notes due 2015 were seen having tightened by some 70 bps on the day to 459 bps.

In the credit-default swaps market, a trader said that debt-protection costs for bonds issued by major banks like B of A were unchanged to 5 bps tighter, while brokerage-house CDS costs were unchanged.

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