ERAC, Norfolk Southern, Duke Energy price, primary slows; bank paper flat in trading

By Andrea Heisinger and Cristal Cody

New York, March 12 - There was a downturn in the number of high-grade deals in the market Monday compared to the previous week.

Bond sales came from ERAC USA Finance Co., Norfolk Southern Corp., Duke Energy Indiana, Inc. and a reopening from Wyndham Worldwide Corp.

The day's largest offering was done under Rule 144A and Regulation S by ERAC USA, the financing arm of Enterprise Rent-A-Car. The issuer priced $600 million of bonds with five- and 10-year maturities.

Terms of the deal were not available at press time.

Norfolk Southern sold $600 million of 10-year paper after upsizing from $500 million.

Lodging company Wyndham Worldwide reopened its 4.25% notes due 2022 to add $150 million. The original issue priced on Feb. 27.

There was a $250 million deal of 30-year mortgage bonds from Duke Energy Indiana.

The preferred stock market saw a deal price from Axis Capital Holdings Ltd. The holding company for reinsurance subsidiaries sold $400 million of perpetual non-cumulative preferred stock shares in line with talk.

The previous week was a blockbuster, ending with the second-highest issuance volume ever in the high-grade market.

It was a stark contrast to Monday's four deals, which topped out in size at $600 million.

"The market was fine, it was in decent shape," a source said after the close. "The Dow was up." The drop off in deals was mostly because "the market's so saturated, mostly from last week," and needs time to absorb all of the new deals, the source added.

Syndicate desks reported that Tuesday should see an uptick in issuance.

"We might have a couple that will look, but nothing too crazy," one source at a larger desk said.

Another market source said that they "definitely had something" for Tuesday's primary.

The Markit CDX Series 17 North American high-grade index closed Monday at a spread of 95 basis points.

Bonds were flat to wider on the day in secondary trading, sources said.

Activity in the new bonds was not immediately available from traders.

Bank and financial paper traded mostly flat. Bank of America Corp.'s notes were unchanged from the previous week.

Investment-grade bank and brokerage credit default swaps costs were unchanged to lower on the day.

Bank of America's CDS costs traded 5 bps lower at 255 bps bid, 265 bps offered. Citi's CDS costs traded 2 bps lower at 210 bps bid, 220 bps offered. JP Morgan's CDS costs were unchanged on the day at 100 bps bid, 105 bps offered.

On the brokerage side, Goldman Sachs' CDS costs traded flat at 245 bps bid, 255 bps offered. Merrill Lynch's CDS costs fell 5 bps to 285 bps bid, 295 bps offered. Morgan Stanley's CDS costs traded unchanged at 325 bps bid, 335 bps offered.

Treasuries ended mostly flat. The benchmark 10-year note yield was unchanged at 2.03%. The 30-year bond yield fell 1 bp to 3.17%.

Norfolk Southern's 10-year

Norfolk Southern priced an upsized $600 million of 3% 10-year notes (Baa1/BBB+/) to yield Treasuries plus 110 bps, a market source said.

Bank of America Merrill Lynch, J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC were bookrunners.

The proceeds are being used for general corporate purposes.

The freight railroad operator is based in Norfolk, Va.

Duke Energy sells $250 million

Duke Energy Indiana sold $250 million of 4.2% 30-year first mortgage bonds (A2/A/) at a spread of Treasuries plus 105 bps, a source close to the trade said.

RBC Capital Markets LLC, RBS Securities Inc. and UBS Securities LLC were bookrunners.

The proceeds are being used to repay a portion of short-term notes payable.

The subsidiary of Duke Energy Corp. is based in Plainfield, Ind.

Wyndham reopens 10-year

Wyndham Worldwide reopened its issue of 4.25% notes due 2022 (Baa3/BBB-/) to add $150 million, an informed source said.

The notes (Baa3/BBB-/) were priced at a spread of Treasuries plus 235 bps.

Total issuance is $650 million, including $500 million priced on Feb. 27 at 235 bps over Treasuries.

Bookrunners were Bank of America Merrill Lynch and J.P. Morgan Securities LLC.

The proceeds are being used to repurchase notes due 2016 and 2020 in a tender offer, repay borrowings under a revolving credit facility and for general corporate purposes.

The lodging company is based in Bethesda, Md.

Axis Capital preferreds

Axis Capital Holdings priced $400 million of 6.875% perpetual non-cumulative preferred stock shares, series C, a market source said.

The talk on the dividend was 6.875% as of early afternoon, a source said, with the shares pricing in line with that level.

The shares will have a liquidation preference price at $25.

Wells Fargo Securities LLC was bookrunner.

The proceeds are being used for the repurchase of series B preferreds in a tender offer.

The holding company for reinsurance subsidiaries is based in Bermuda.

First Potomac gives terms

First Potomac Realty Trust gave terms of its $40 million, or 1.6 million shares, of added 7.75% perpetual cumulative redeemable preferred shares sold at $25.2045 late Friday, according to an FWP filing with the Securities and Exchange Commission.

There is an overallotment option of 200,000 shares, which would bring the deal size to $45 million, or 1.8 million shares.

The company originally issued 4.6 million, or $115 million, of the preferreds on Jan. 18.

Wells Fargo Securities LLC was bookrunner.

The proceeds will be contributed to the company's operating partnership, First Potomac Realty Investment LP, in exchange for preferred partnership units. The operating partnership will then use the funds to repay a portion of an outstanding balance under the company's unsecured revolving credit facility and for working capital and general corporate purposes.

First Potomac is a Bethesda, Md.-based real estate investment trust.

Bank of America flat

Bank of America's 7.625% notes due 2019 (Baa1/A-/) were unchanged at 335 bps on Monday.

The issue priced in May 2009 in a $2.5 billion offering at a spread of 410 bps over Treasuries.

The financial services company is based in Charlotte, N.C.

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