Wal-Mart sets record-low coupon; CSX sells two tranches; Wal-Mart debt firms; CDS costs fall

By Andrea Heisinger and Cristal Cody

New York, Oct. 18 - Wal-Mart Stores Inc. brought a massive deal to the market on Monday, with CSX Corp. joining the retailer in the market. Both priced later in the afternoon.

Arkansas-based Wal-Mart sold its $5 billion of notes in four parts. All of the tranches priced either in line with or at the tight end of price guidance, sources said.

CSX had a smaller deal totaling $800 million in two tranches.

There was no new deal rushed to the market by Citigroup Inc. after the banking giant reported a net profit of $2.2 billion for the third quarter, beating expectations. The market tone did get a "bump" from the news, a source said, but with more financials reporting earnings throughout the week, it could be temporary.

In the previous week, JPMorgan Chase & Co. announced solid earnings and then turned around and priced $4 billion of new bonds on the same day.

There could be some larger deals from financial names and other companies that have reported earnings in the past week or two, one syndicate source said.

"I think we could pick up," he said of volume for the week. "I don't know that we have more than a few definite [deals], but it should be busy."

Some of this could be an opportunistic tapping of the market post-earnings, the source said. Record-low interest rates continue to lure companies into selling bonds.

In secondary trading, two of the four tranches Wal-Mart sold firmed late afternoon, a source said.

Overall investment-grade Trace volume was down about 4% to $10.5 billion on the day, according to a market source.

Treasuries rose, sending yields down on longer-term bonds on Monday for the first time in a week on growing expectations the Federal Reserve will buy back more debt.

The yield on the 10-year benchmark note fell 5 bps to 2.51%, while the 30-year bond yield fell 3 bps to 3.95%.

Wal-Mart offers $5 billion

Wal-Mart priced $5 billion of senior unsecured notes (Aa2/AA) in four tranches late in the day, a source close to the deal said.

The $750 million tranche of 0.75% three-year notes priced at Treasuries plus 30 bps. Price guidance was in the 30 bps area, with the notes pricing in line with that.

A $1.25 billion tranche of 1.5% five-year notes was priced to yield Treasuries plus 48 bps. This was in the mid-range of price talk in the 50 bps area.

The third - and largest - tranche was $1.75 billion of 3.25% 10-year notes priced at a spread of 78 bps over Treasuries. The notes priced within guidance in the range of 75 bps to 80 bps.

A final tranche of $1.25 billion of 5% 30-year bonds sold at Treasuries plus 115 bps. It priced at the tight end of price talk in the 120 bps area.

Barclays Capital Inc., Bank of America Merrill Lynch and Goldman Sachs & Co. were active bookrunners. Proceeds are being used for general corporate purposes, including repayment of commercial paper.

Wal-Mart last sold bonds in a $3 billion deal on June 30. The 2.25% five-year notes sold at 53 bps over Treasuries, and the 3.625% 10-year notes in that sale sold at 70 bps. A 4.875% 30-year bond priced at 108 bps over Treasuries.

In the secondary market, two of the tranches were seen tightening in initial trading late afternoon, a source said.

The notes due 2015 firmed to 47 bps bid, 45 bps offered.

The tranche of notes due 2020 was quoted at 78 bps bid, 75 bps offered.

The discount retailer is based in Bentonville, Ark.

Deal sets coupon lows

Two tranches from the Wal-Mart sale beat AAA rated Microsoft Corp. in both coupon and yield. The company had set a record-low for its three-year note coupon of 0.875% when it priced $4.75 billion in four tranches on Sept. 22. The Microsoft note had a lower spread of 25 bps over Treasuries, however, while Wal-Mart's three-year yielded 30 bps.

The 10-year and 30-year tranches did not set record lows. Johnson & Johnson came in with low coupons of 2.95% for its 10-year and 4.5% for a 30-year when it priced a deal on Aug. 12.

CSX's two tranches

CSX priced $800 million of senior unsecured bonds (Baa3/BBB-/BBB-) in two parts, a source away from the deal said.

The $500 million tranche of 3.7% 10-year notes priced at a spread of Treasuries plus 120 bps.

A second part was $300 million of 5.5% bonds due in 2041 that priced at a spread of 162.5 bps over Treasuries.

J.P. Morgan Securities LLC and Morgan Stanley & Co. Inc. were bookrunners.

Proceeds are going toward general corporate purposes, including debt repayment, common stock repurchase, capital expenditures, working capital, productivity improvements and other cost reductions at CSX's major transportation units.

CSX last sold bonds in a $500 million deal of 7.375% 10-year notes on Jan. 14, 2009. The notes priced at 525 bps over Treasuries, or more than four times the spread of the new 10-year notes.

The company's last 30-year bonds were priced on March 24, 2008, at 310 bps over Treasuries.

The transportation supplier is based in Jacksonville, Fla.

Market up but volatile

There were a couple of bright spots in the high-grade market for the day, with Citigroup's earnings in the morning followed by a profit increase from International Business Machines Corp. and Apple Inc. in the afternoon.

Those couldn't lift the market's tone above other less-inviting news lingering from the previous week that ended with remarks about economic uncertainty from Federal Reserve Chairman Ben Bernanke and the cost of foreclosures on big banks.

"I think the consensus is the tone is volatile," a syndicate source said. "In general, it's more solid."

There was also news out on Monday that Bank of America Corp. would resume foreclosures sooner than expected after recently halting the process.

The week is not expected to have massive amounts of new issues, the source said, adding that about the same amount as the previous week is expected. There was about $10 billion of bonds priced during the previous short week.

Most desks reported about three or four new deals to come, with the Wal-Mart sale likely the largest.

"I think the trend is all the big stuff comes out first and then [issuance] tapers off," a source said.

The latter half of the week should have some bond sales, but mostly smaller in size.

Bank-brokerage CDS costs drop

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 via a CDS contract fell by between 3 bps and 22 bps - a sign of increased investor confidence in the recently hard-hit sector. He speculated that the prices were going back down as a reaction to having moved sharply higher over several sessions last week amid news of allegations that the banks had acted improperly in originating home loans and foreclosing on troubled mortgages and demands that they pay billions of dollars to correct those mistakes.

Paul Deckelman contributed to this review.

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