Apple brings record $17 billion deal, joins Boeing, RBC in primary; Apple notes trade tighter

By Aleesia Forni and Andrea Heisinger

New York, April 30 - Apple Inc. blazed into the high-grade bond market on Tuesday, as two other issuers simultaneously priced smaller trades.

Much attention was paid to the behemoth Apple sale, which totaled $17 billion spread across six tranches. Demand grew to $40 billion from $5 billion and then to about $50 billion by noon ET.

Talk was tightened between 5 bps and 15 bps in the morning as demand grew, as did speculation on how large the trade could be.

Apple is using proceeds for general corporate purposes, including common stock repurchase and to fund a dividend payment under a recently expanded program to return capital to shareholders.

Boeing Co. and the Royal Bank of Canada were also in the market.

Single-A rated Boeing sold $500 million of bonds in a floating-rate tranche due 2014 and a five-year note.

When asked whether the Apple sale overshadowed Boeing's, a sale close to the latter sale said, "Not at all. When we announce a trade, people listen. It's a name people know."

The $150 million of floaters due 2014 saw about $450 million of demand, while the five-year notes garnered about $1.6 billion of investor interest, sources said.

"It was really well-received," a source who worked on the fixed-rate tranche said.

"[Syndicate desks] that weren't working on Apple felt like the cool kid that didn't get picked for kickball, though."

RBC came to the market with a $1.5 billion trade in two tranches due 2015, one with a fixed rate and one a floater.

A source away from the sale said that RBC announced their trade late - after 10 a.m. ET - and launched the two notes at the levels of initial price whispers.

Treasury yields are at record-low rates, which is why some well-known and trusted companies are tapping the market. In addition to Apple and Boeing, there were sales on Monday from McDonald's Corp., Colgate-Palmolive Co. and Altria Group, Inc.

Away from the Apple sale, the high-grade market was characterized as "pretty slow" by one syndicate source, who added that "there was just not much happening" in trading.

In trading of preferred stock, U.S. Bancorp's $500 million of 5.125% series H noncumulative perpetual preferreds freed from the syndicate in early trading. At midday, a trader said the paper was offered at $25.12, though he saw the issue trade in a range of $25.05 to $25.15.

Another market source placed the issue at par bid, $25.10 offered.

The Markit CDX North American Investment Grade index was 1 basis point tighter at a spread of 75 basis points on Tuesday.

In trading on Tuesday, the new bonds from Apple were quoted tighter across the board.

"It's all about Apple today," one trader said during the session.

In other secondary action, Monday's new issues from Colgate-Palmolive Co. and McDonald's Corp. were trading slightly wider on the day.

Investment-grade bank and broker credit default swap costs declined during Tuesday's session, according to a market source.

Bank of America Corp.'s CDS costs were 1 bp tighter at 116 bps bid, 121 bps offered. Citigroup Inc.'s CDS costs tightened 2 bps to 100 bps bid, 103 bps offered. JPMorgan Chase & Co.'s CDS costs were 1 bp tighter at 86 bps bid, 89 bps offered. Wells Fargo & Co.'s CDS costs were unchanged at 69 bps bid, 72 bps offered.

Merrill Lynch's CDS costs were 3 bps tighter at 103 bps bid, 113 bps offered. Morgan Stanley's CDS costs also declined 3 bps to 136 bps bid, 139 bps offered. Goldman Sachs Group, Inc.'s CDS costs were 2 bps tighter at 119 bps bid, 124 bps offered.

Apple prices tight

Apple sold $17 billion in six tranches in its debut sale of notes (Aa1/AA+/), according to market sources.

A source said at midday that initial investor demand was for $5 billion to $6 billion, but had ballooned to about $50 billion by noon ET. The company could price in the ballpark of $15 billion to $18 billion of bonds, the source said.

A $1 billion tranche of three-year floating-rate notes was priced at par to yield Libor plus 5 bps. Initial talk was in the Libor plus 20 bps area, and was revised to the Libor plus 10 bps area.

There was $1.5 billion of five-year floaters sold at par to yield Libor plus 25 bps. Guidance was initially in the Libor plus 35 bps area, and later tightened to the Libor plus 30 bps area.

The $2 billion of three-year notes sold at a spread of Treasuries plus 20 bps. Initial talk was in the Treasuries plus 40 bps area and later revised to the 25 bps area.

A $4 billion tranche of five-year bonds was sold at 40 bps over Treasuries. Talk was in the 55 at first, but later tightened to the 45 bps area.

The notes were quoted 2 bps tighter at Treasuries plus 38 bps bid in trading.

There was $5.5 billion of 10-year notes sold at Treasuries plus 75 bps. Initial guidance was in the 90 bps to 95 bps area, and later shifted in to the 80 bps area.

A market source quoted the notes at 72 bps bid, 65 bps offered during the session.

Finally, there was $3 billion of 30-year bonds priced at Treasuries plus 100 bps. Talk was given in the 115 bps to 120 bps area, and later tightened to the 105 bps area.

The notes firmed 3 bps to 97 bps bid, 90 bps offered.

Talk on all of the bonds had a margin of plus or minus 5 bps.

Bookrunners were Goldman Sachs & Co. and Deutsche Bank Securities Inc.

The computer and mobile communications device company is based in Cupertino, Calif.

Apple's record size

The $17 billion trade from Apple easily bested the previous record for a non-financial issuer. That record was held by Roche, the Basel, Switzerland- based health care and pharmaceutical company that priced $16 billion in six tranches on Feb. 18, 2009. More recently, AbbVie, Inc. offered $14.7 billion in six tranches on Nov. 5, 2012.

The Apple sale came on the heels of Microsoft Corp.'s offering of $1.95 billion in three tranches on April 25. Microsoft was said to have purposely tapped the market when it did, after Apple announced in its first-quarter earnings that it would price billions of dollars in debt in the next two years to return capital to shareholders.

The AAA rated Microsoft trade included a 1% five-year note priced at Treasuries plus 32 bps, a 2.375% 10-year note sold at 70 bps over Treasuries and a 3.75% 30-year bond priced at Treasuries plus 90 bps.

Boeing's two tranches

Boeing tapped the market for $500 million of senior notes (A2/A/A) in two parts, an informed source said.

There was a do-not-grow provision on the offering, the source said.

The trade included $150 million of a floating-rate note due 2014 priced at par to yield Libor plus 1 bp.

The second part was $350 million of 0.95% five-year notes sold at a spread of Treasuries plus 50 bps. Talk was in the Treasuries plus 55 bps area, the source said.

Bookrunners for the notes due 2014 were Morgan Stanley & Co. LLC, Barclays and Deutsche Bank Securities Inc. Those for the bonds due 2018 were Morgan Stanley, Citigroup Global Markets Inc., Goldman Sachs & Co. and J.P. Morgan Securities LLC.

Proceeds are being used for general corporate purposes, including the funding of Boeing Capital Corp.

The Chicago-based aerospace company was last in the U.S. bond market with a $750 million offering in two parts through Boeing Capital. That sale included a 2.125% five-year note priced at Treasuries plus 65 bps.

RBC sells $1.5 billion

The Royal Bank of Canada was in the day's session with a $1.5 billion sale of notes (Aa3/AA-/AA) in two parts, a source away from the trade said.

The sale included $1.15 billion of two-year floating-rate notes priced at par to yield Libor plus 21 bps.

A $350 million tranche of 0.55% two-year notes sold at a spread of Treasuries plus 35 bps.

RBC Capital Markets LLC was bookrunner.

The Montreal-based financial services company was last in the U.S. bond market with a $3 billion sale of three-year notes in two tranches on March 5.

Colgate wider

The secondary market saw Colgate-Palmolive's $400 million of 0.9% five-year notes, which priced a spread of Treasuries plus 32 bps on Monday, traded 4 bps wider at 32 bps bid, 27 bps offered, a trader said.

The company's $400 million of 2.1% 10-year bonds was quoted 1 bp wider at 60 bps bid, 56 bps offered.

A source at another desk had quoted the notes at 57 bps offered at midday.

Colgate is a New York City-based consumer products company.

McDonald's weakens

In other trading, McDonald's $500 million sale of 3.625% 30-year bonds was quoted 3 bps wider at 86 bps bid, 84 bps offered after being quoted at 82 bps offered early during the session.

The notes priced at Treasuries plus 83 bps on Monday.

The fast food chain is based in Oak Brook, Ill.

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