Duke Energy, South Carolina Electric & Gas, EIB price as backlog begins to emerge

By Andrea Heisinger and Paul Deckelman

Omaha, Jan. 7 - Part of the recent backlog began to emerge Monday with issues from South Carolina Energy & Gas Co., Duke Energy Carolinas, LLC and European Investment Bank.

Market sources said they expect a busy week ahead, with the volume of issues likely increasing Tuesday and continuing Wednesday and Thursday.

In the investment-grade secondary market Monday, advancing issues led decliners by a better than seven-to-six ratio. Overall market activity, reflected in dollar volume, was essentially unchanged from Friday's levels.

One of the big gainers - although on restrained volume - was Starbucks Corp., which shuffled some key players at the top in an effort to stir things up and get the Seattle-based coffee vendor out of its current rut. Other gainers included JC Penney Corp. and Kraft Foods.

A major loser was a Goldman Sachs issue which had previously seen solid gains, as players decided to take some money off the table. Its price fell the equivalent of several points in active dealings, as the bonds' spread over comparable Treasuries widened out considerably from Friday's tightened levels.

Also on the downside were such names as IBM and Comcast.

Duke oversubscribed

Duke Energy priced an upsized $900 million of first and refunding mortgage bonds in two tranches.

The issue was increased from a planned $600 million.

The $400 million tranche of 5.25% 10-year bonds priced at 99.66 to yield 5.294% at a spread of Treasuries plus 145 basis points.

The $500 million tranche of 6% 30-year bonds priced at 99.93 to yield 6.005% at a spread of Treasuries plus 165 bps.

Bookrunners were J.P. Morgan Securities Inc. and Wachovia Capital Securities LLC.

"That issue was highly oversubscribed," a market source said. "I think it was something like four times over. That bodes well for other issues, I think."

South Carolina Electric & Gas priced $250 million 6.05% 30-year first-mortgage bonds at 99.903 to yield 6.057% at a spread of Treasuries plus 172 bps.

Bank of New York Capital Markets, Inc., Credit Suisse Securities LLC and Morgan Stanley & Co. Inc. were bookrunners.

EIB brings $4 billion

The EIB priced $4 billion of 3.25% three-year global notes at 99.772 to yield 3.329% at a spread of Treasuries plus 57 bps. This was in line with price talk that was at 57 bps area, a source close to the deal said.

Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc. were bookrunners.

The issue was not surprising, but its size was, a market source said.

"They took a big chunk out of the market," he said.

Toyota Motor Credit Corp. priced $250 million of one-year floaters Monday at par to yield one-month Libor plus 5 bps.

Citigroup was bookrunner.

More deals expected

"It should be a fun-filled week," a source said.

He said new issues would be weighted toward the second half of the week, on Wednesday and Thursday.

"There will be a lot of mid-size trades late in the week," the source said. "The buy-side is willing to put their money to work."

The source said he was not planning on running books on any trades Tuesday, but it didn't mean others wouldn't be.

"I think the thing is, no one wants to be the first to go, and everyone's waiting to see where others price," he said.

Another source disagreed and said there would be issues Tuesday.

"There should be a fair amount coming out tomorrow and the rest of the week for that matter," the source said. "I think we'll see a continuation of today, if not more."

Starbucks tighter

The news that the recently underperforming Starbucks had fired its chief executive, Jim Donald, and had brought chairman Howard Schultz back to the CEO post he held from 1987 to 2000, as part of a major restructuring initiative, pushed the company stock up in after-hours trading and proved to be the bondholders' cup of tea as well. Its 6.25% notes due 2017 tightened to about 155 bps over from around 172 bps at the close on Friday, although Monday's trading was light, given the relatively late hour at which the news broke.

Also on the upside was Plano, Tex.-based department store operator JC Penney's 5.75% notes due 2018, which were seen by a market source to have tightened about 10 bps to the 275 bps level. Another gainer was Kraft's 6.125% notes due 2018.

Goldman 6.75s off

On the downside, one of the big losers on the day was Goldman Sachs' 6.75% notes due 2037, which in the past week had tightened solidly -a source saw its spread over Treasuries decline to around 217 bps on Friday, the equivalent of a 4 point rise in its dollar price, from 98 at mid-week to about 102. But on Monday, the profit-takers moved in, as the spread ballooned up to the 270 bps level, equivalent to a dollar-price fall of nearly 6 points on the session.

Also seen in retreat Monday were IBM's 5.05% notes due 2012, which widened out around 15 bps to the 125 bps level. Meanwhile, Comcast's 6.95% bonds due 2037 were out about the same amount, to the 215 bps level.

Financial CDS wider

A trader saw bank and brokerage credit-default swaps widen out, in line with generally easier financial names. He said that while the major brokerage names were about 4 bps to 8 bps wider generally, Bear Stearns zoomed out about 22 bps to a level of 210 bps bid, 220 bps offered. Among the banks, he said, debt-protection costs were generally out 2 bps to 4 bps. But Washington Mutual's CDS costs were 20 bps wider at 465 bps bid, 485 bps offered.

He said, with no small irony, that Bear and WaMu "were the day's two stars."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.