Capital One, JPMorgan sell post-earnings; GFI prices crossover deal; Target notes firm 7 bps

By Andrea Heisinger and Cristal Cody

New York, July 14 - The high-grade bond market mostly shrugged off unease about the possible downgrade of U.S. credit ratings by Moody's Investors Service on Thursday as two large deals were sold.

Capital One Financial Corp. was given a go call early in the day and later priced $3 billion of bonds in three parts. The sale was brought to market to help finance the $6.2 billion cash consideration for the $9 billion pending acquisition of ING Direct.

The bank sold $2 billion of equity on Wednesday along with announcing second-quarter earnings, so the decision to sell bonds a day later was considered timely, a source close to the sale said.

"The nature of the acquisition gave a lot of lead time to investors," the source said.

Also pricing paper was JPMorgan Chase & Co. The banking giant jumped into the primary with a $1.75 billion sale of 30-year bonds after giving it a boost with its second-quarter earnings announcement in the morning.

The New York City-based financial reported a Q2 profit of $5.4 billion, or a 13% jump from the same period a year ago.

A split-rated sale was priced early in the day by GFI Group, Inc. The financial sold $250 million of seven-year senior notes after the trade went overnight from Wednesday.

This earnings news from JPMorgan may have helped offset Moody's report on Wednesday that if the U.S. debt ceiling isn't raised, it could downgrade the country's credit rating from its Aaa status.

"I don't know if they canceled each other out, but I think with the success[ful trades] on Wednesday, we had some momentum this morning," a market source said. "No one really knew how today would look."

Another source who worked on one of the day's sales said that the threat of a ratings downgrade was "giving a kick in the butt to lawmakers" of the potential implications of what could happen if they don't raise the debt ceiling.

The source also said that the announcement from Moody's was only reinforcing Standard & Poor's decision to place the U.S. ratings on review for a possible downgrade.

Friday is not expected to have much activity in the primary as results of a stress test on European banks are announced, sources said.

The Markit CDX Series 15 North American investment-grade index eased 1 bp to a spread of 97 bps on Thursday, according to Markit Group Ltd.

In the secondary market, JPMorgan's new bonds due 2041 widened 2 basis points, according to a trader.

Royal Bank of Canada's new five-year notes sold the previous day traded mostly unchanged.

But Target Corp.'s new short-dated notes traded about 7 bps tighter in the secondary market on Thursday.

Overall trading volume edged up to about $12.5 billion.

Treasuries dropped after Moody's put the United States on a potential downgrade. The 10-year note yield jumped to 2.95% from 2.88%. The 30-year bond yield climbed to 4.25% from 4.17%.

Capital One prices $3 billion

Capital One Financial sold $2 billion of senior notes (Baa1/BBB) in four parts late in the day, a source who worked on the trade said.

The $250 million of three-year floating-rate notes priced at par to yield Libor plus 115 bps.

A $750 million tranche of 2.125% three-year notes sold at a spread of Treasuries plus 150 bps. The notes were priced at the low end of guidance in the 155 bps area.

There was a $750 million tranche of 3.125% five-year notes sold at a spread of 170 bps over Treasuries. The notes were sold at the tight end of talk in the 175 bps area.

A final part was $1.25 billion of 4.75% 10-year notes priced at Treasuries plus 185 bps. The tranche was sold at the tight end of guidance in the 190 bps area.

There was nearly $10 billion in demand from roughly 260 investors, the source said. Most of the interest was in the 10-year tranche that had "upwards of $5 billion" on the books.

The floaters had about $650 million on the books while the remaining two fixed-rate tranches each saw about $2.5 billion in interest.

Active bookrunners were Barclays Capital Inc., Citigroup Global Markets Inc. and Morgan Stanley & Co., Inc.

Proceeds are being used to finance the $6.2 billion cash consideration for the pending acquisition of ING Direct, along with cash on hand and proceeds from a common stock offering.

Capital One Financial was last in the market with a $1 billion deal of 7.375% five-year notes priced at 540 bps over Treasuries on May 19, 2009.

The diversified banking corporation is based in McLean, Va.

JPMorgan post-earnings sale

JPMorgan Chase sold $1.75 billion of 5.6% 30-year bonds following the release of its second-quarter earnings, a market source said.

The bonds (Aa3/A-) were priced at a spread of Treasuries plus 140 bps.

J.P. Morgan Securities LLC was bookrunner.

JPMorgan last priced long bonds in a $1.25 billion sale of 5.5% 30-year paper on Oct. 14, 2010. Those bonds priced at 165 bps over Treasuries.

In the secondary market, the new bonds due 2041 widened to 142 bps bid, 141 bps offered, a trader said.

The financial services company is based in New York City.

GFI's crossover deal

GFI Group priced $250 million of split-rated 8.375% seven-year senior notes early in the day at par to yield 8.375%, a market source said.

The notes (Ba2/BBB-/BBB) were priced under Rule 144A and Regulation S.

Jefferies & Co. was the bookrunner.

Proceeds are being used to both repay outstanding amounts including interest under a credit agreement and 7.17% senior notes. Any remainder will be used for general corporate purposes.

GFI attempted to tap the market with a $250 million offering of 10-year notes on Aug. 20, 2010, before withdrawing the deal to look at alternative structures. Company executives had said they would look at selling bonds at a later date.

The brokerage and trade execution company is based in New York City.

RBC flat

The Royal Bank of Canada's new notes due 2016 traded mostly flat, firming 1 bp on the offer side to 88 bps bid, 87 bps offered on Thursday, a trader said.

The $1.25 billion offering of 2.3% five-year notes (Aa1/AA-) priced at a spread of Treasuries plus 88 bps on Wednesday.

The investment bank is based in Toronto.

Target firms

Target's 1.125% three-year notes (A2/A+/A) sold the previous day were active in secondary trading with the notes tightening 7 bps, a trader said.

The notes firmed to 46 bps bid, 43 bps offered on Thursday. Target priced $350 million of the notes due 2014 at a spread of Treasuries plus 53 bps on Wednesday.

The discount general merchandise chain is based in Minneapolis.

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