Lloyds Banking Group plans retail note sale; IG market tone down; TransCanada wraps preferreds

By Andrea Heisinger and Cristal Cody

New York, June 29 - There were no new investment-grade bonds priced on Tuesday and one $350 million issue of preferred stock from TransCanada Corp., continuing the slow start to the week.

Lloyds Banking Group plc is planning a sale of 40-year retail notes, with pricing as early as Wednesday afternoon, a source said. The initial size is $300 million, but that is almost certain to grow, the source said.

A 300-point market drop and continued worries about a variety of issues including Europe, the Gulf of Mexico oil spill and financial regulation contributed to the empty market, a source said.

There is also light supply and the fact that some domestic issuers may be waiting until after the July 4 holiday weekend.

"We could see some more foreign issuers," the source said. "I don't think we're going to see a whole lot from U.S. companies because they have the holiday coming up."

The financial sector was weaker in trading, with high-grade debt from Bank of America Corp., Citigroup Inc. and Goldman Sachs Group, Inc. wider by the end of the day, sources said.

Overall investment-grade Trace volume jumped 30% to nearly $12 billion, a source said.

In general, though, the high-grade market was weaker on the day, according to sources.

The CDX Series 14 North American investment-grade index was 6 basis points weaker at a mid bid-asked spread of 122 bps, a source said.

Yields on two-year and 10-year Treasury notes dipped on Tuesday. Yields on two-year notes fell 2 bps to 0.6% after earlier hitting a record intraday low of 0.59%, and yields on benchmark 10-year notes dipped 7 bps to 2.95%.

Thirty-year bond yields also were tighter and ended at 3.93% versus 4% the previous day.

"Everybody is incredibly concerned about what's going on in the United States, what's going on in Europe and what's going on in Asia. Basically everybody's arguing that nobody's going to grow and if nobody is going to grow, they just want to take the yield - 3% for 10 years becomes a lot more attractive than it otherwise would be," said Dan Greenhaus, market strategist at Miller Tabak & Co.

Lloyds plans sale

Lloyds Banking Group announced a minimum $300 million sale of 40-year public income notes on Tuesday with a price of $25 each, according to a 424B2 filing with the Securities and Exchange Commission and an informed source.

The deal is expected to price "tomorrow afternoon at the earliest," the source said on Tuesday. He added that the $300 million figure is a minimum and the deal will likely grow.

The notes (A1/A/AA-) are being talked with a coupon in the 7.75% area.

This is the company's first time issuing retail notes, a source said.

Citigroup Global Markets is the bookrunner.

Proceeds will be used for general corporate purposes.

The financial services company is based in London.

Shaky market attracts no deals

The day never really got its footing as the stock market was down, and the bond market followed.

"There's not a lot happening in the corporate bond world," a syndicate source said after the close.

The only deal even announced was the Lloyds Banking sale, which another source said "doesn't even really count."

If there are any sales on tap for Wednesday or Thursday, they're likely to be small, the source said.

"It's not like we're probably going to see any blockbuster sales."

The syndicate source said that if the tone is better on Wednesday, there is potential for some deals to price.

Bank paper weaker

Investment-grade debt from banks and financial institutions moved out on Tuesday, sources said.

"Bank bonds are wider about 10-15 bps," one trader said.

For example, Charlotte, N.C.-based Bank of America's 7.625% notes due 2019 eased in trading to 262 bps from 255 bps the day before, a source said.

New York-based Citigroup's 6.375% notes due 2014 widened to 297 bps over Treasuries from 282 bps on Monday.

Also, New York-based Goldman Sachs' 7.5% notes due 2019 traded 9 bps weaker at 285 bps on Tuesday, a source said.

TransCanada sells preferreds

TransCanada said Tuesday that it completed its public offering of series 5 cumulative redeemable first preferred shares for total gross proceeds of $350 million.

The size of the offering was increased to a total of 14 million shares after the underwriters exercised their option to acquire an additional 2 million shares, the company said.

"The recent sale of preferred shares went very well as the underwriters were able to sell all of the 14 million shares," TransCanada spokesman Cecily Dobson told Prospect News.

The offering was first announced on June 17 when TransCanada entered into an agreement with a syndicate of underwriters led by Scotia Capital Inc., RBC Capital Markets and BMO Capital Markets.

The proceeds will be used to partially fund capital projects, for general corporate purposes and to reduce the short-term debt of TransCanada and its affiliates.

The company would not say if it plans any other offerings in the near future.

"We are not in a position to speculate on any future financial transactions by TransCanada," Dobson said.

The Calgary, Alta.-based company develops and operates natural gas and oil pipelines, power generation and gas storage facilities in Canada and the United States.

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