PepsiCo, KfW, SpareBank, Great River tap debt market; tone remains heavy; bank paper widens

By Andrea Heisinger and Cristal Cody

New York, Oct. 19 - PepsiCo, Inc., KfW, Great River Energy and SpareBank 1 Boligkreditt AS each tapped the high-grade bond market on Tuesday for multi-billion-dollar deals.

PepsiCo sold $2.25 billion in three tranches that all priced at the tight end of talk. The sale included maturities in 2013, 2020 and 2040.

Germany's KfW sold $4 billion of five-year bonds that are guaranteed by that country's government.

Another overseas sale came from Norway's SpareBank 1 Boligkreditt. The commercial bank sold $1.5 billion of three-year covered bonds under Rule 144A.

Electric cooperative Great River Energy priced $400 million of first mortgage bonds due 2030 in the Rule 144A market.

Earnings hit market

It was a big day for earnings, with two of the largest financial names reporting third-quarter numbers before the open. Bank of America Corp. announced a $7.3 billion loss for the quarter, mostly due to its credit card unit. This news came on the heels of headlines of the bank resuming foreclosures after halting them for a short time.

That news on Monday had left the tone of the high-grade market uneasy, and the earnings didn't help the situation, a source said.

"We were kind of shaky at the open on that," he said. "I think that could be why there weren't more [deals]."

Also reporting earnings was Goldman Sachs Group, Inc., which made $1.9 billion in the third quarter. That was a drop from the $3.2 billion made in the same quarter a year ago.

The primary didn't get any better after the drop in tone at the end of the previous week that continued into Monday.

"I think it held in, but it's softer," a syndicate source said. "It's a mixture of the noise on earnings and mortgage [foreclosure] mess."

There is no official word if Citigroup Inc., Goldman Sachs or Bank of America have bond deals in the pipeline following earnings, the source said, adding "it's TBD, given the tone."

High-grade bonds in the financial sector weakened on the day while new debt from PepsiCo firmed in the secondary, traders said.

Also, Wal-Mart Stores Inc.'s four tranches of debt priced on Monday stayed active in trading, sources said Tuesday.

"All trading tighter today," one trader said.

Overall investment-grade Trace volume rose 24% to more than $13 billion, a source said.

Secondary trading overall, though, was "feeling weak this afternoon," a source said.

"We started off a little bit stronger this morning and have come off hard this afternoon," a trader in retail, media and industrial bonds said. "It's definitely weaker now, probably 3 basis points or so in my universe."

The Markit CDX Series 14 North American investment-grade index eased 3 bps to a spread of 100 bps, Markit Group Ltd. said.

Elsewhere in the market, shares and bonds of H&R Block, Inc. were active on high volume levels, sources said.

"H&R Block was down pretty hard today," one trader said.

The Kansas City, Mo.-based tax preparer's bonds ended the day down about 2 bps across the board. Its notes due 2014 were seen trading at 90.75 bid, 91.75 offer.

Treasuries rallied on Tuesday on the drop in stocks. The rise sent yields down, with longer-dated bonds reporting the biggest rally.

The yield on the 10-year benchmark note fell to 2.48% from 2.51%. The 30-year bond yield eased 4 bps to 3.91%.

"The intermediate to the longer end of the curve had been down earlier and are now," said Mary Ann Hurley, a fixed income trader for D.A. Davidson & Co. "The whole curve is higher in price, lower in yield across the board. When in doubt, buy Treasuries."

PepsiCo's three tranches

Food and beverage giant PepsiCo sold $2.25 billion of senior notes (Aa3/A) later in the afternoon in three parts, a source away from the sale said.

The $500 million of 0.875% three-year notes priced at a spread of 35 bps over Treasuries. This was at the tight end of price talk in the range of 35 bps to 38 bps.

A second tranche of $1 billion in 3.125% 10-year notes sold at a spread of Treasuries plus 75 bps. This was at the tight end of price talk between 75 bps and 78 bps.

The final tranche was $750 million in 4.875% 30-year bonds that sold at a spread of 97 bps over Treasuries. This was in line with guidance in the 100 bps area.

The company was "one of those coupon hunting," a source said, after Wal-Mart set a record-low borrowing rate for its three-year notes priced Monday.

"I don't think that's why they priced, but they still got [good rates]," the source said.

BNP Paribas Securities Corp., J.P. Morgan Securities LLC and UBS Securities Inc. were the bookrunners.

Proceeds are going to fund the pending tender offer for up to $500 million of the company's 7.9% senior notes due 2018 and for general corporate purposes.

PepsiCo last sold bonds in a $4.25 billion sale in four tranches on Jan. 11. The 4.5% 10-year notes in that offering priced at 73 bps over Treasuries and the 5.5% 30-year bonds at Treasuries plus 85 bps.

The food and beverage company is based in Purchase, N.Y.

KfW sells $4 billion

KfW priced $4 billion of 1.25% five-year guaranteed global notes at 99.456, according to an FWP filing with the Securities and Exchange Commission.

The notes (Aaa/AAA/AAA) were talked in the mid-swaps flat area.

The bookrunners were Goldman Sachs & Co. International, Nomura Securities and RBC Capital Markets Corp.

The deal is guaranteed by the Federal Republic of Germany.

The government-owned development bank is based in Frankfurt.

SpareBank's covered bonds

Commercial bank SpareBank 1 Boligkreditt priced $1.5 billion of 1.25% three-year covered bonds at 74.9 bps over Treasuries, a market source said.

The bonds were priced under Rule 144A.

Bank of America Merrill Lynch, Barclays Capital Inc., Credit Suisse Securities (USA) LLC and HSBC Securities USA Inc. were the bookrunners.

The issuer is based in Stavanger, Norway.

Great River prices $400 million

Great River Energy priced $400 million of 4.478% first mortgage bonds due 2030 to yield Treasuries plus 200 bps, a source said late in the day.

The notes (A3/A-/A-) were sold under Rule 144A.

The bookrunners were JPMorgan, Mitsubishi UFJ Securities and Scotia Capital (USA) Inc.

The electric cooperative is based in Maple Grove, Minn.

PepsiCo tightens

PepsiCo's new debt firmed soon after release to secondary trading, sources said.

"The new PepsiCos are a couple basis points better," one trader said.

The soda company sold notes due 2013 at Treasuries plus 35 bps. The shorter-dated notes firmed to 34 bps bid, 31 bps offered, traders said.

The tranche of notes due 2020 priced at Treasuries plus 75 bps. The 10-year notes tightened initially on the offer side to 75 bps bid, 70 bps offered and later were seen trading at 74 bps bid, 72 bps offered.

The final tranche of bonds due 2040 priced at Treasuries plus 97 bps. The bonds traded at 91 bps offer and were quoted in the late afternoon at 95 bps bid, 92 bps offered, sources said.

Financial sector widens

The high-grade financial sector moved out in the secondary market on poor earning news from Bank of America and Goldman Sachs, a source said.

"Most of the day was off about 5 basis points," the source said. "After the Bank of America news, it was off 10, 15."

Bank of America said its third-quarter loss widened to $7.7 billion, or 77 cents a share, from $2.2 billion, or 26 cents a share, in the same period a year ago.

Also, Goldman Sachs said third-quarter earnings fell to $1.74 billion, or $2.98 a share, compared to $3.03 billion, or $5.25 a share, in the year-ago period.

Wal-Mart firms

Wal-Mart Stores' new debt stayed active in secondary trading, sources said Tuesday.

The Bentonville, Ark.-based retailer priced $5 billion of senior unsecured notes (Aa2/AA) in four tranches the previous day.

"The Wal-Marts are about 2 basis points better on the 15s and 20s," a trader said.

Wal-Mart's two additional tranches of notes due 2015 and bonds due 2040 traded about 5 bps better, the trader said.

Wal-Mart sold a $750 million tranche of 0.75% notes due 2013 at Treasuries plus 30 bps. On Tuesday, the notes firmed to 26 bps bid, 24 bps offered and again to 21 bps bid, 20 bps offered, additional traders said.

A $1.25 billion tranche of 1.5% notes due 2015 that priced to yield Treasuries plus 48 bps traded Tuesday at 47 bps bid, 45 bps offered, according to sources.

The third tranche of $1.75 billion in 3.25% notes due 2020 priced at 78 bps over Treasuries. On Tuesday, the notes were quoted at 78 bps bid, 76 bps offered.

A final tranche of $1.25 billion in 5% bonds due 2040 sold at Treasuries plus 115 bps. The bonds were stronger in the secondary at 110 bps bid, 108 bps offered.

Bank-brokerage CDS prices rise

A trader who watches the credit default swaps market said that the cost of protecting holders of big-bank bonds or paper issued by investment banks against an event of default by a CDS contract jumped on Tuesday.

Bank of America CDS costs climbed 13 bps, while Citi CDS costs rose 5 bps and JPMorgan's CDS costs rose 3 bps.

Costs among investment bank/brokerage companies were mixed. Merrill Lynch CDS costs rose 15 bps, while Goldman Sachs CDS costs fell 3 bps.

Paul Deckelman contributed to this report

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