Berkshire Hathaway, KeyBank price as financials dominate; secondary weakens; risky bonds active

By Aleesia Forni and Andrea Heisinger

New York, Jan. 29 - Issuance picked up slightly in the high-grade bond market on Tuesday as Berkshire Hathaway Inc., KeyBank NA and FMR LLC, aka Fidelity Investments, priced debt.

Berkshire Hathaway had the largest offering of the day at $2.6 billion in four tranches.

The day's other issuers had not tapped the bond market for a few years.

FMR sold $700 million in 20-year and 30-year maturities after last pricing bonds in 2009.

Cleveland-based KeyBank sold $1 billion of five-year paper. The financial services company's last sale was in 2008.

Terms of the trade were unavailable at press time.

The preferred stock market was active as JPMorgan Chase & Co. and Arbor Realty Trust Inc. announced sales.

JPMorgan sold an upsized $850 million of noncumulative perpetual preferred shares. The size was increased from $500 million, a source said.

Arbor Realty planned an offering of cumulative preferreds.

Issuers were intent on getting in after earnings and ahead of an announcement out of the Federal Open Market Committee meeting that began on Tuesday and concludes on Wednesday.

The market tone was heard to be "OK" on Tuesday, although some traders expect fluctuations later in the week due to a possible shift in Treasury yields and some economic data, as well as the FOMC meeting announcement.

"I think people just wanted to get in while they could," one source said.

A syndicate source close to one of Tuesday's trades said that the issuance calendar is expected to be quiet for the remainder of the week.

"Who knows what's going to come out of the [FOMC] meeting tomorrow?" the source said.

"Last time we thought nothing was going to come out of it, they changed the wording of some things."

Also, the source confirmed that syndicate desks are "closely watching" the Treasury yields.

"I think we should pick up next week, and then the end of February is expected to really see a bump in supply," he said. "The earnings calendar is still messing things up."

The Markit CDX Series 18 North American Investment Grade index was unchanged at a spread of 86 bps.

Trading was slightly weaker on Tuesday, one secondary source said.

The session saw continued activity in potential event risk names, as one trader saw bonds from Dell Inc. and Hewlett-Packard Co. "dominating the flows" in the secondary.

The recent deals from General Mills Inc. and FirstMerit Corp. were tighter compared to Monday's issue spreads.

Berkshire sells $2.6 billion

Berkshire Hathaway tapped the market for a $2.6 billion trade of senior notes (Aa2/AA+/A+) in four tranches, a market source said.

There was "just north of $7 billion" of investor demand for the tranches.

There was $300 million of 0.8% three-year notes priced at a spread of Treasuries plus 37.5 bps. Price talk was in the 40 bps area.

An $800 million tranche of 1.55% five-year notes sold at a spread of 70 bps over Treasuries. The tranche was sold at the low end of guidance in the 75 bps area.

The $500 million of 3% 10-year bonds priced at Treasuries plus 110 bps. Pricing was at the tight end of talk in the 115 bps area.

Finally, a $1 billion tranche of 4.5% 30-year bonds was sold at Treasuries plus 140 bps. Guidance was in the 145 bps area.

Goldman Sachs & Co. and Wells Fargo Securities LLC were bookrunners.

Proceeds are being used to repay 2.125% senior notes due 2013 totaling $1.4 billion and floating-rate notes due 2013 totaling $1.2 billion. The repayment will be at par plus accrued interest.

The holding company for various subsidiaries is based in Omaha.

FMR sells privately

FMR, known as Fidelity Investments, was in the market with a $700 million sale of notes (A2/A+/) in two tranches, an informed source said.

The sale included $400 million of 4.95% 20-year notes sold at a spread of Treasuries plus 180 bps. The tranche was sold tighter than talk in the Treasuries plus 200 bps area.

The $300 million of 5.15% 30-year bonds priced at 200 bps over Treasuries. There was guidance in the 215 bps area, a source said in late morning.

There was roughly $1.6 billion of demand for the 20-year notes and $1.1 billion for the 30-year tranche, the source said.

Citigroup Global Markets Inc. and Goldman Sachs & Co. were bookrunners.

Pricing was done under Rule 144A and Regulation S.

Proceeds will be used for general corporate purposes.

FMR was last in the U.S. bond market with a $700 million offering of 12-year notes and 30-year bonds on Oct. 28, 2009. The 6.45% 30-year bonds from that deal were priced at 220 bps over Treasuries.

The mutual fund and investment services company is based in Boston.

JPMorgan's perpetuals

JPMorgan Chase sold $850 million of series P noncumulative perpetual preferred stock (expected Ba1/BBB/BBB-) at par to yield 5.45%, a market source said.

A trader saw the issue less 25 cents in the midday gray market. Another market source quoted the issue at $24.70 bid, $24.75 offered post-pricing.

J.P. Morgan Securities LLC was bookrunner.

Price talk was initially in the 5.5% area, the source noted. It was then revised to 5.45%.

The preferreds will be issued by the New York City-based bank as depositary shares representing a 1/400th interest.

Arbor Realty preferreds

Arbor Realty Trust is planning a sale of series A cumulative redeemable preferred stock, the company said in a prospectus filed with the Securities and Exchange Commission.

Deutsche Bank Securities Inc., JMP Securities, Ladenburg Thalmann & Co. Inc. and MLV & Co. LLC are the joint bookrunners.

Arbor intends to list the new securities on the New York Stock Exchange under the ticker symbol "ABRPA."

Proceeds will be used to make investments into the business, to repurchase or pay liabilities and for general corporate purposes.

Arbor Realty Trust is based in Uniondale, N.Y.

General Mills tighter

One trader saw General Mills's $250 million tranche of 0.875% three-year notes at 40 bps bid, 36 bps offered following Monday's pricing at a spread of 45 bps over Treasuries.

The $500 million of 4.15% 30-year bonds was quoted at 100 bps bid, 98 bps offered.

The notes priced at a spread of 105 bps over Treasuries.

Both tranches were 1 bp wider respectively from levels seen earlier during the session.

The sale also included a $250 million tranche of three-year floating-rate notes, which sold at par to yield Libor plus 30 basis points.

The maker of consumer food products is based in Minneapolis.

FirstMerit trades better

FirstMerit's $250 million of 4.35% 10-year subordinated notes was quoted at 227 bps bid, 224 bps offered on Tuesday, a trader said.

The notes sold in Monday's market to yield Treasuries plus 237.5 bps.

FirstMerit is a financial services company is based in Akron, Ohio.

Stephanie N. Rotondo contributed to this review

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