Johnson & Johnson nets record-low coupons; Detroit Edison upsizes; new debt firms in secondary

By Andrea Heisinger and Cristal Cody

New York, Aug. 12 - Johnson & Johnson and Detroit Edison Co. were the only bond sales on an otherwise quiet Thursday in the high-grade market, but it was still a record-setting day.

That was because the $1.1 billion two-tranche deal from AAA-rated Johnson & Johnson came at record-low interest rates for the maturities priced, a source said. Both the 10-year notes and 30-year notes also priced at the tight end of guidance and were well oversubscribed.

Detroit Edison sold a smaller $300 million issue of 10-year mortgage bonds at about the same time in late afternoon. The sale was upsized and priced in line with guidance.

The slowdown in issuance was expected and is predicted to last until Monday, a source said.

"We needed a break," he said. "There's a lot of paper that's priced, so it was time."

In the secondary market, corporate bonds traded "a bit weaker" on Thursday, while the new debt priced earlier in the day firmed, a source said.

Altria Group, Inc.'s existing 9.7% notes due 2018 moved out to 235 basis points over Treasuries from 221 bps over Treasuries the previous day, one source said. The holding company for tobacco subsidiaries is based in Richmond, Va.

The CDX Series 14 North American investment-grade index was unchanged with a spread of 109 bps, according to a market source.

Trading volume was "decent," a source said.

Overall investment-grade Trace volume was seen up 33% at about $14.5 billion, according to a market source.

Treasuries eased as the government finished the last of three auctions on what may be "buyer fatigue," a source said.

The Treasury Department sold $16 billion in 30-year bonds at a yield of 3.954% in the last auction of the week.

The yield on the 10-year note rose 7 bps to 2.75%. The yield on the 30-year bond ended up 3 bps at 3.95%.

J&J prices at record low

Johnson & Johnson priced $1.1 billion of senior unsecured notes (Aaa/AAA/AAA) in two tranches on Thursday, a source who worked on the sale said.

The $550 million tranche of 2.95% 10-year notes priced at a spread of Treasuries plus 43 bps. They were sold at the tight end of guidance in the 45 bps area. This tranche also had a slightly lower coupon than what was expected, a source said.

A $550 million tranche of 4.5% 30-year bonds sold at 68 bps over Treasuries. This tranche was also priced at the tight end of talk in the 70 bps area.

Demand for the deal was "several times" oversubscribed, a source said late in the day. The source did not have an exact tally for the books but did say that demand was spread fairly evenly between the two tranches.

Citigroup Global Markets Inc., Goldman, Sachs & Co. and J.P. Morgan Securities Inc. were the active bookrunners.

Proceeds are going for general corporate purposes.

The notes due 2020 were seen tighter on the offer side soon after hitting the secondary market at 45 bps bid, 42 bps offered, according to sources.

In late afternoon, the notes firmed to 43 bps bid, 40 bps offered.

The second tranche of bonds initially widened and then firmed late in the day in secondary trading.

The bonds due 2040 moved out to 72 bps bid, 67 bps offered then tightened to 70 bps bid, 67 bps offered before the last quote late in the day at 68 bps bid, 65 bps offered, the traders said.

Johnson & Johnson last priced bonds in a similar $1.6 billion issue of 10-year and 30-year tranches on June 18, 2008. That 5.15% 10-year bonds priced at 103 bps, and the 5.85% 30-year bonds sold at 113 bps.

The health-care products and consumer goods company is based in New Brunswick, N.J.

Primary absorbs deals

The slowing of issuance in the investment-grade market was welcome news as nearly two weeks of non-stop issuance had left the market inundated with new paper.

"I think we all need to do a little clean-up," one market source said.

Companies had rushed to the market to take advantage of low borrowing rates. A source had predicted earlier in the week that there could be an issuer or two set to price bonds at record-low rates. That came true with the Johnson & Johnson sale, which priced its new 10-year bonds at not much more than half the interest rate of the same maturity two years ago.

"They knew it would be low, but this was even lower than expected," a source said. The 10-years had initially been expected to have a borrowing rate of 3.1% and priced at 2.95%.

There are no new deals on the calendar for Friday, but following the Johnson & Johnson sale, it's possible an issuer could jump in to end the week, the market source said.

Detroit Edison upsizes 10-years

Electric utility Detroit Edison priced an upsized $300 million of 3.45% 10-year series B general and refunding mortgage bonds (A2/A-/A-) in the afternoon at a spread of 80 bps over Treasuries, according to an FWP filing with the Securities and Exchange Commission.

They were talked in the 80 bps area in the morning and priced in line with that, a source said. The size was originally $250 million.

The bookrunners were Bank of America Merrill Lynch, Barclays Capital Inc. and Scotia Capital. Proceeds are going to repay a portion of the $500 million outstanding principal amount of 6.125% notes maturing Oct. 1, 2010 and for general corporate purposes.

In secondary trading, the notes due 2020 tightened on the offer side to 80 bps bid, 76 bps offered, a trader said.

The subsidiary of DTE Energy is based in Detroit.

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