Masco sells split-rated bonds, coming week seen busy; Masco gains, recent new deals firm

By Andrea Heisinger and Cristal Cody

New York, March 5 - Masco Corp. was the sole issuer in the high-grade bond market on Friday, bringing a split-rated issue.

The home and building company sold $500 million of 10-year notes off the investment-grade syndicate desks.

The primary's market tone was mostly unchanged, but issuance for the week had run its course.

Sources had predicted on Thursday that there would be little to no action to end the week.

"It's not the market, but I think people are just waiting," a syndicate source said.

There is the potential for large bond sales to come to the market in the coming week, but nothing official has been announced.

In secondary trading, Masco's new notes were seen stronger, and new offerings priced earlier in the week from Baxter International Inc., Johnson Controls, Inc. and Republic Services Inc. tightened, according to sources.

Meanwhile, the CDX Series 13 North American high-grade index firmed 4 bps to a mid bid-asked spread level of 85 bps, according to one market source.

"Didn't see as much flow today as I thought I might after the job numbers came out," one source said Friday.

Overall Trace volume slid 15% to nearly $11 billion, according to a market source.

Also on Friday, U.S. Treasuries weakened. The 10-year Treasury note eased 8 bps to 3.68%, and the yield on the 30-year bond moved out to 4.64% from 4.56%.

Masco sells split-rated 10-years

Masco priced $500 million of 7.125% split-rated senior unsecured notes (Ba2/BBB) by early afternoon at a slight discount to yield 7.125%, a source close to the sale said.

The sale was done off the high-grade syndicate desks, he said. The notes have a spread of Treasuries plus 343.4 bps.

Initial price talk was whispered in the mid-7% yield area, the source said, and then revised to the 7.125% to 7.25% range with pricing at the tight end of that.

There was more interest from high-grade investors, the source said, although added that it was a mix and "certainly, both sides were in play."

Bookrunners were Bank of America Merrill Lynch, Citigroup Global Markets and J.P. Morgan Securities.

Proceeds are going for general corporate purposes, including repayment of floating-rate notes due on March 12, 2010.

The home improvement and building products company is based in Taylor, Mich.

Busy week ahead

Bond issues should continue to multiply in the coming week, after several days of good market tone led to a continuous stream of sales in the week just completed.

"We should be busy," a source said late in the day. "I'm hearing that away [from his own desk], as well."

Though there are no deals set in stone, it's expected there will be "some big stuff" on top of some smaller offerings, he said.

Drug maker Merck KGaA had announced plans to issue bonds recently. It's possible that sale could get done in the coming week, a source said.

Another offering was pushed back from this week, a syndicate source said.

As long as market conditions hold up, bond sales should "keep on rolling," he said.

The past week saw nearly all of the sales oversubscribed multiple times, and pricing at the tight end of price talk, regardless of the deal's ratings.

This trend held up on Friday with the split-rated sale from Masco that got done at the tight end of guidance, a source said.

Masco stronger

Masco offered the only new debt to hit secondary trading after it priced its deal earlier on Friday.

The company sold $500 million of 7.125% split-rated senior notes due 2020 at par, and the notes were seen nearly a point better in secondary trading late afternoon at 100.75 bid, 101 offered, one trader said.

As the market closed, the notes moved back some, a source said.

"Masco priced right around par," the source said. The notes were "last" at 100.50 bid, 101 offered.

Johnson Controls firms

The 5% senior unsecured notes due 2020 (Baa2/BBB) that priced on Thursday from Johnson Controls traded stronger Friday, according to traders.

Milwaukee-based Johnson Controls, a building, automotive and power technology company, sold the notes at 145 bps over Treasuries.

Late Friday, the notes tightened to 134 bps bid, 132 bps offered, according to sources.

The notes were "offered earlier" at 133 bps over Treasuries, one trader said.

Baxter tightens

Baxter International's new notes from Thursday's primary market gained substantial strength in secondary trading on Friday, sources said.

The Deerfield, Ill.-based medical technology company sold $600 million of senior unsecured notes in two tranches. The 1.8% notes due 2013 priced at Treasuries plus 50 bps.

On Friday, the 3-year notes firmed to 35 bps bid, 30 bps offered, one trader said.

Also, Baxter's 4.25% notes due 2020, which priced at Treasuries plus 70 bps, were seen "early this A.M." tighter at 59 bps bid, 55 bps offered, according to a source.

The 10-year notes continued tightening and were last seen at 58 bps bid, 55 bps offered, a trader said.

Republic firms at week's end

Meanwhile, industrials fared better on Friday after widening on the previous day, a source told Prospect News.

"Pretty much everything was tighter across the board," the source said.

For example, Dow Chemical Co.'s notes due 2019 "are 5, 10 bps better on the week."

On Thursday, the Midland, Mich.-based chemical and plastics manufacturer's 8.55% notes due 2019 were 20 bps wider at 225 bps.

In addition, other industrials such as the new notes priced on Monday from Republic Services and Baxter were better.

"Republic and Baxter both are at least 5 bps better," the source said.

Republic, a Phoenix-based waste management company, priced $1.5 billion of notes in two tranches on Monday, including bonds due 2040 at Treasuries plus 165 bps.

The notes due 2020 priced at Treasuries plus 140 bps and later that day firmed to 137 bps bid, 134 bps offered.

Republic's 10-year notes opened Friday at 137 bps bid, 132 bps offered, the source said.

The notes were "going out" at that same level.

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