CSX sells to cap high-volume week; pace to slow ahead of holiday; Disney, Google unmoved

By Andrea Heisinger and Cristal Cody

New York, May 20 - Unlike most Fridays in the high-grade bond market, this one saw a new deal - from CSX Corp.

The railroad transportation company priced $600 million of notes in two parts, one of which was a reopening of existing 5.5% paper due 2041. The railroad transportation company also priced a new 10-year note. The deal had a do-not-grow provision, so the size didn't increase despite what one source called "decent demand."

There was also the announcement of a sale by Landwirtschaftliche Rentenbank. The German lender is selling five-year notes via bookrunners Credit Suisse Securities LLC, J.P. Morgan Securities LLC and RBC Capital Markets LLC, according to a 424B5 filing with the Securities and Exchange Commission. It was unclear at press time if the deal had priced.

The CSX sale wrapped a hectic week of opportunistic issuance amid low coupons.

According to Prospect News data, there was $27.47 billion of new bonds priced throughout the week in 43 new deals as of Friday afternoon. A syndicate source said his desk saw $31.42 billion in the high-grade market for the week and $64.15 billion so far in May.

There is between $12 billion and $17 billion expected in the coming week - a step back from the past two weeks that have seen $20 billion or more of issuance.

"It's a holiday week, so it's going to be top heavy," a market source said, referring to the Memorial Day holiday.

Unlike the past week that saw some sizable trades, there are smaller deals upcoming, the source said.

"There could be one or two [large deals] but it's mostly going to be smaller - maybe more utilities," the source said.

Secondary flows decline

In the secondary market, Walt Disney Co.'s notes that sold on Wednesday traded slightly better at the end of the week but mostly little moved from initial secondary levels, a trader said.

Google Inc.'s 10-year notes that priced on Monday were still weaker but "unchanged from yesterday," a source said.

Overall investment-grade Trace volume dropped more than 20% to less than $9.5 billion for a typically light Friday, a market source said.

The Markit CDX Series 14 North American investment-grade index eased 1 basis point to a spread of 90 bps, Markit Group Ltd. said.

Government bonds were lifted on renewed overseas fears after Fitch Ratings cut Greece's rating further into to junk territory, sending the benchmark 10-year Treasury note yield down 3 bps to 3.14%.

"The markets are trading a little bit off the momentum of the idea of an economic slowdown from yesterday," said Nick Kalivas, a market strategist at MF Global Holdings Ltd. On the long end of the curve, the 30-year bond yield ended flat at 4.3%.

CSX's two tranches

CSX sold $600 million of senior notes (Baa3/BBB) in two tranches, including a reopening of existing debt, according to an FWP filing with the SEC.

The $350 million of new 4.25% 10-year notes sold to yield Treasuries plus 115 bps. They priced at the tight end of guidance in the 120 bps area.

A second part of the offering was a reopening of 5.5% notes due 2041 to add $250 million. The notes were priced at a spread of 125 bps over Treasuries. These notes were priced tight to talk that was in the 130 bps area.

Total issuance for the 2041 paper is $550 million, including $300 million sold on Oct. 18, 2010 at 162.5 bps over Treasuries.

Bookrunners were Credit Suisse Securities (USA) LLC and UBS Securities LLC.

Proceeds are going to general corporate purposes, including debt repayment, common stock repurchases, capital expenditures, working capital, improvements in productivity and cost reductions.

A trader saw the new notes due 2021 at 114 bps bid, 111 bps offered in the gray market. CSX's bonds due 2041 that were reopened were quoted at 125 bps bid.

The rail transportation company is based in Jacksonville, Fla.

Disney firmer

Walt Disney's $500 million of 3.75% 10-year notes (A2/A/A) that priced Wednesday to yield Treasuries plus 60 bps were tightened a little.

In the secondary market, the notes traded tighter at 59 bps bid, 57 bps offered, a trader said.

The media conglomerate is based in Burbank, Calif.

Google mixed

Google's 3.625% notes due 2021 that priced on Monday traded unchanged at 63 bps bid, 61 bps offered on Friday versus the previous day, a trader said.

The notes priced at 58 bps over Treasuries.

The technology company is based in Mountain View, Calif.

Goldman CDS costs widen out

A trader who watches the credit-default swaps market said that "the banks didn't do well with the situation over in Greece," which saw its credit rating cut three notches by Fitch Ratings, with the agency saying that even a voluntary extension of its bond maturities being studied by European Union policy makers would be considered a default.

He said that the cost of contracts protecting holders of the banks' paper against a possible event of default were unchanged to 1 basis point higher on the day - and he said investment banking company CDS contracts "were out wider."

He said Goldman Sachs & Co. did the worst, with the cost rising by 7 bps to 140 bps bid, 143 bps offered, while Morgan Stanley was up by 2 bps and Merrill Lynch was unchanged.

He said Goldman's CDS cost jumped in line with a fall in its New York Stock Exchange-traded shares of more than 3% Friday, to a nine-month low, as the company continues to reel from a recent published report alleging all kinds of improper conduct during the 2007-2010 financial crisis by Goldman boss Lloyd Blankfein and others at the New York-based investment banking giant.

He noted reports that the Justice Department is studying a Senate panel report issued last month that charges that Goldman misled clients about mortgage-linked securities, and that it may issue subpoenas to key Goldman executives as part of its investigation.

Goldman's shares have fallen 13% since the Senate report was released.

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