PPL, KfW, Quebec sell as primary tone takes dive; bonds widen, Disney weaker; PPL firms

By Andrea Heisinger and Cristal Cody

New York, Aug. 18 - The only high-grade corporate bond sale of the day came from PPL Electric Utilities Corp.

The utility priced $400 million of 10-year first-mortgage bonds by early afternoon.

"They already knew what size to get done, so it went fast," said a source who worked on the trade, adding that it was "in and out."

On the sovereign side of the market, there was a $2 billion sale of 10-year notes from KfW.

The Province of Quebec sold $1.4 billion of 10-year global notes.

The stable market conditions present at the close on Wednesday disappeared overnight as fears from several fronts, including Eurozone debt, resurfaced and caused markets in Asia and Europe to drop.

"The action on the Street just made everyone want to get out of here," a syndicate source said at the close in reference to desks emptying out early.

By day's end, the Dow had plummeted more than 400 points and the bond market rally from the first half of the week died down.

"The deals that did get done sold pretty quickly," said one source in reference to PPL Electric and Quebec. "[It was] nice while it lasted."

Investment-grade bonds moved lower in the secondary market on Thursday as stocks dropped and Treasuries rose. The 10-year government bond yield fell to lows not seen in decades. The benchmark Treasury note yield dropped below 2% before ending the session at 2.06%, down from 2.17% the previous day. The 30-year bond yield fell 15 basis points to 3.42%.

The Markit CDX Series 16 North American high-grade index was 7 bps weaker at a spread of 117 bps.

"Horrible," one trader said of bond performance.

Walt Disney Co.'s three tranches of high-grade bonds widened in the secondary market on Thursday, a trader said.

A couple bonds were seen trading about 2 bps better, including Progressive Corp.'s 3.75% 10-year notes and the new mortgage bonds from PPL Electric.

Overall trading volume fell more than 15% to about $11.4 billion.

PPL's quick sale

PPL Electric Utilities priced $400 million of 3% 10-year first mortgage bonds (A3/A-/A-) to yield Treasuries plus 100 bps, an informed source said.

Bookrunners were Barclays Capital Inc., Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Morgan Stanley & Co., Inc.

Proceeds are being used to repay short-term debt, including $150 million borrowed in a revolving credit agreement and a $100 million intercompany loan incurred to pay the redemption of $400 million of 7.125% senior secured bonds on July 26.

In the secondary market, PPL Electric's new mortgage bonds due 2021 firmed to 98 bps bid, 93 bps offered, a trader said.

The utility is based in Allentown, Pa.

KfW sells $2 billion

Germany's KfW sold $2 billion of 2.375% 10-year global notes (Aaa/AAA/AAA) at 99.735, according to an FWP filing with the Securities and Exchange Commission.

Bookrunners were Bank of America Merrill Lynch, Deutsche Bank Securities Inc. and Goldman Sachs & Co.

The government-owned development bank is based in Frankfurt.

Quebec offers 10-years

The Province of Quebec sold $1.4 billion of 2.75% 10-year global notes (Aa2/A+/AA-) to yield 2.795%, said a source close to the sale.

Full terms were not available at press time.

Bookrunners were Bank of America Merrill Lynch, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and Scotia Capital (USA) Inc.

Proceeds are being added to the Consolidated Revenue Fund of Quebec and applied to the general expenses of Quebec or advanced to the Financing Fund of Quebec.

The issuer is based in Montreal.

Disney widens

Walt Disney's $1.85 billion of notes (A2/A/A) sold in three tranches on Wednesday widened in trading on Thursday, according to a trader.

The 1.35% notes due 2016 widened to 68 bps bid, 62 bps offered. Disney sold $750 million of the notes at a spread of Treasuries plus 60 bps.

Disney's 2.75% notes due 2021 moved out to 87 bps bid, 82 bps offered from the issue spread of 72 bps over Treasuries, the trader said.

The last tranche, a $350 million offering of 4.375% 30-year bonds sold at Treasuries plus 87.5 bps, also widened to 96 bps bid, 92 bps offered.

The media conglomerate is based in Burbank, Calif.

Progressive firmer

Progressive's rare debt deal stayed tighter in the weaker secondary markets on Thursday, a trader said.

The 3.75% 10-year senior notes (A1/A+/A) firmed to 153 bps bid, 150 bps offered. Progressive sold the notes to yield Treasuries plus 160 bps.

The insurance company is based in Mayfield Village, Ohio.

Bank/brokerage CDS down

Showing a loss of investor confidence in sector, a trader said, "the banks really went out [i.e., CDS costs rose]. They got smashed pretty badly."

The cost of CDS contracts to protect bondholders against default rose 37 bps for Bank of America paper, 21 bps for Citibank and 12 bps for JP Morgan.

Among investment bank/brokerage companies, Merrill Lynch's CDS cost up 40 bps, Morgan Stanley up 35 bps with Goldman Sachs up 20 bps.

Paul Deckelman contributed to this review

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