RBS, Boardwalk, Sierra Pacific, Air Products sell bonds on upbeat tone; Watson prices, gains

By Andrea Heisinger and Paul Deckelman

New York, Aug. 18 - The pace picked up slightly in investment grade on Tuesday, as did the market tone, with offerings from Royal Bank of Scotland, Boardwalk Pipelines, LP, Sierra Pacific Power Co. d/b/a NV Energy and Air Products and Chemicals, Inc.

A split-rated deal was also done in two tranches by Watson Pharmaceuticals, Inc. It was priced off the high-grade desk, although attracted high-yield interest.

Issuance is expected to stay steady, but not pick up in the next couple of days, syndicate sources said.

A market source said next week will likely be busier leading up to the long Labor Day weekend.

Among the established issues in the secondary arena on Tuesday, a market source said the CDX Series 12 North American high-grade index tightened by 2 basis points to a mid bid-asked spread level of 122 bps.

Advancing issues - which led decliners for a third straight session on Monday - stayed ahead on Tuesday, though by a relatively small margin.

Overall market activity, reflected in dollar-volume totals, rose about 27% from Monday's pace.

Spreads in general were seen tighter, in line with higher Treasury yields; for instance, the yield on the benchmark 10-year issue rose by 5 bps on Tuesday to 3.51%.

The new Watson Pharmaceuticals split-rated bonds were seen having tightened solidly from the spread level versus comparable Treasury issues at which the drug company priced its two-part issue.

Among the financials, Royal Bank of Scotland Group's new five-year mega-deal traded a little tighter than issue.

Boardwalk raises $350 million

Houston-based Boardwalk Pipelines priced $350 million of 5.75% 10-year senior notes at Treasuries plus 225 bps, an informed source said.

Price guidance was at 230 to 235 bps, with the deal pricing tighter than that range, the source said. There was "north of $1 billion" on the books, he said.

Citigroup Global Markets, J.P. Morgan Securities and Wells Fargo Securities ran the books.

Proceeds will be used to repay $100 million under a subordinated loan agreement with Boardwalk Pipelines Holding Corp. and to fund expansion projects, either directly or by repaying debt under a revolving credit facility.

The deal is guaranteed by parent company Boardwalk Pipeline Partners, LP.

The issuer is a natural gas transportation and storage company.

Air Products brings 10-year early

Air Products and Chemicals sold $400 million of 4.375% 10-year notes at Treasuries plus 88 bps.

The deal was completed by early afternoon, a source close to it said.

Bookrunners were BNP Paribas Securities, HSBC Securities and RBS Securities.

Proceeds are going for general corporate purposes.

The hydrogen and helium products company is based in Allentown, Pa.

Watson sells split-rated deal

Watson Pharmaceuticals priced $850 million of split-rated notes (Ba1/BBB-/BBB-) in two tranches, a source close to the deal said.

The $450 million of 5% five-year notes priced at 262.5 bps over Treasuries, which was the same level as the $400 million tranche of 6.125% 10-year notes.

Both tranches priced 12.5 bps inside guidance in the 287.5 bps area, a syndicate source close to the deal said.

It was "definitely run off the high-grade desk," a source close to the deal said. The majority of interest came from high-grade accounts, he said, although there was "a good bit of interest on the high-yield side, as well."

The syndicate source said there was $6.5 billion in investor demand for the offering.

Bank of America Merrill Lynch and Barclays Capital were bookrunners.

The specialty pharmaceutical company is based in Corona, Calif.

RBS prices $2 billion via 144A

Royal Bank of Scotland priced $2 billion of 4.875% five-year notes at Treasuries plus 250 bps a source away from the deal said.

RBS Securities was bookrunner.

The deal was done via Rule 144A.

The retail banking subsidiary of Royal Bank of Scotland Group is based in Edinburgh, Scotland.

Market tone perks up

After a gloomy and slow start to the week, issuance level and the market's tone took a turn for the better, a syndicate source said.

"It was better," he said. "We opened on a better tone and kept it for the rest of the day. I'm guessing that's why we had all these issues today."

The source said he "hopes it stays that way for the rest of the week."

A market source said the remainder of the week, as well as the coming one, will likely stay busy as issuers try to get offerings priced ahead of the long Labor Day weekend.

"I think we'll stay fairly active," he said. "I'm not seeing it [issuance] being like last week, but busy."

The sales will likely come from mostly industrial names, and selling in small amounts.

"I think it will look like today," the market source said. "It was mostly some smaller industrials, but then there was that RBS deal."

Sierra Pacific reopens bond due 2016

Sierra Pacific Power reopened its 6% general and refunding mortgage bonds due 2016 to add $150 million, according to an FWP filing with the Securities and Exchange Commission.

The notes priced at Treasuries plus 180 bps.

Total issuance is $450 million including $300 million issued March 23, 2006.

Bookrunners were Barclays Capital and the Bank of New York Mellon Capital Markets.

Proceeds will be used to repay a revolving credit facility due November, 2010.

The electric and natural gas subsidiary of NV Energy, Inc. is based in Reno, Nev.

Watson bonds look like winners

When the new Watson Pharmaceuticals bonds were freed for secondary dealings, a trader opined that "both Watsons" looked like they were at 242 bps bid - well in from the 262.5 bps over level at which the company had earlier priced its $450 million of 5% notes due 2014 and its $400 million of 6.125% notes due 2019.

Boardwalk goes nowhere

A trader meantime saw Boardwalk Pipeline's new 5.75% notes due 2019 little changed from their issue price, quoting the bonds offered at 224 bps over - versus the 225 bps over level at which that $350 million issue had priced earlier in the session

Air Products improves

However, Air Products & Chemicals' 4.375% notes due 2019 tightened a little bit, with a trader pegging those bonds at a spread of 84 bps bid, 80 bps offered.

The company had priced its $400 million deal earlier in the day at 88 bps over.

RBS slightly tighter

In the financial arena , a trader said he saw Royal Bank of Scotland's new 4.875% notes due 2014 trading at 247 bps bid, 242 bps offered, versus their 250 bps over spread at the $2 billion issue's pricing.

Citi takes center stage

Also among the financials, a market source said that New York-based banking giant Citigroup Inc.'s 6 3/8% notes due 2014 was probably the most active credit of the day, seeing nearly $110 million of those bonds having traded just by mid-afternoon. The source quoted the bonds as having tightened to spreads in the high 360s, calling them unchanged on the session despite the high turnover.

However, another trader was seeing those bonds closer to the 400 bps level.

Another Citi issue, its 8 1/8% bonds due 2039, was seen having firmed about 18 bps on the session to the low 390s, on mid-afternoon turnover of at least $35 million.

Its 5% notes due 2014 tightened around 25 bps on the day to around the 450 bps mark.

GE Capital a gainer

A market source saw General Electric Capital Corp.'s 6% notes due 2019 as one of the day's busiest movers, with over $60 million traded by mid-afternoon alone. The source saw those bonds trading around 225 bps over.

A source at another desk saw another one of the Fairfield, Conn.-based commercial lenders' bonds, the 6% notes due 2012, having tightened more than 20 bps on the session to about the 180 bps mark.

Bank, brokerage CDS costs tighten

A trader who follows the credit default swaps market said that the cost of protecting holders of big-bank debt against a possible event of default was anywhere from 5 bps to 15 bps tighter on the session.

He also said that CDS costs for major brokerage company paper was 5 bps to 10 bps tighter.

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