AT&T, Safeway price notes; CIBC Toronto reopens two bonds; AT&T tightens in secondary

By Andrea Heisinger and Cristal Cody

New York, July 27 - AT&T Corp. and Safeway Inc. priced new investment-grade bonds on Tuesday as the pace of issuance slowed from the previous day.

Safeway sold its bonds fairly early in the afternoon. The $500 million offering of 10-year notes priced in line with guidance.

AT&T upsized its sale to $2.25 billion of five-year notes from a minimum of $500 million originally announced.

At the end of the day, there was also a two-tranche reopening of covered bonds totaling $1 billion from CIBC, Toronto branch.

There has already been about $8.5 billion in issuance for the week due to a small number of large deals.

"We slowed down today, but it wasn't all bad," a market source said. "We're still in earnings."

Yields remain low, as evidenced by the day's two deals pricing at spreads considerably lower than previous deals with the same maturities.

For instance, Safeway's last 10-year note issue priced a year ago at nearly twice the spread.

Recently stability in the market is also to thank for the cheaper prices, the source said.

Secondary trading got a boost from the two investment-grade deals priced on Tuesday. The bonds from Safeway and AT&T were seen trading firmer by the end of the day, according to sources.

Overall investment-grade Trace volume jumped 50% to nearly $15 billion, according to a market source.

"Good volume today," a source said.

The CDX Series 14 North American investment-grade index was 1 basis point tighter at 102 bps on Tuesday, a source said.

Treasury prices fell, pushing yields up as the Treasury Department saw a solid auction of $38 billion of two-year notes at a yield of 0.665% on Tuesday.

The yield on the benchmark 10-year note rose above the 3% level on Tuesday, ending the day up 6 bps to 3.05%. The yield on the 30-year bond also rose 6 bps to 4.08%.

AT&T upsizes five-years

Dallas-based AT&T sold an upsized $2.25 billion of 2.5% five-year notes (A2/A/A) at a spread of 77 bps over Treasuries, a source away from the sale said.

The size was announced at a minimum of $500 million.

J.P. Morgan Securities Inc., RBS Securities Inc. and UBS Investment Bank were the bookrunners.

Proceeds are being used for general corporate purposes.

AT&T last priced bonds in a $3 billion deal in three tranches on May 8, 2008. Those tranches included a reopening of five-year notes that priced at 168 bps over Treasuries.

The telecommunications company is based in Bedminster, N.J.

Uneventful day in primary

Despite the two new bond issues for the day, there was "nothing really exciting going on" in the investment-grade primary for the day, a syndicate source said after the close.

The AT&T deal was large, and upsized quite a lot, but its single tranche made for a somewhat quick sale.

"I think they got a good price and that was about it on that one," the source said.

The company did not give specific uses for the proceeds of the sale, but a bond sale has long been rumored to help pay for upgrading an aging infrastructure.

Issuance is likely to be a slow trickle of deals for the remainder of the week, another source said. Most of the recent issuers have sold bonds a day or a week after announcing second-quarter earnings.

Safeway sells $500 million

Safeway priced $500 million of 3.95% 10-year senior unsecured notes (Baa2/BBB/BBB) by early afternoon to yield Treasuries plus 95 bps, a syndicate source said.

Bookrunners were JPMorgan, Morgan Stanley & Co. Inc. and RBS Securities.

Proceeds will be used to repay outstanding borrowings under the company's U.S. commercial paper program, with any remainder used to repay $500 million of 4.95% notes due Aug. 16, 2010.

The notes were slightly firmer on the offer side in the secondary market, a trader said. By late afternoon, the 10-year notes were quoted at 96 bps bid, 93 bps offered.

Safeway last sold $500 million of 10-year notes on July 31, 2009 at Treasuries plus 158 bps. This was the company's most recent deal.

The food and drug retailer is based in Pleasanton, Calif.

CIBC branch reopens bonds

CIBC Toronto reopened two of its covered bonds in a $1 billion deal, a market source said late in the day.

The issuer reopened its 2% bonds due 2013 to add $400 million. They priced at a spread of Treasuries plus 27 bps.

A 2.6% covered bond due 2015 was also reopened to add $600 million. The bonds priced at Treasuries plus 56 bps.

Both were sold under Rule 144A.

Bookrunners were Bank of America Merrill Lynch, CIBC, HSBC Securities and RBS Securities.

The financial services company is based in Toronto.

AT&T tightens

AT&T's new offering quickly tightened in the secondary market, a source said.

The communications company priced $2.25 billion of 2.5% notes due 2015 at a spread of Treasuries plus 77 bps.

The notes were last seen at 72 bps offered.

"Saw them earlier at 70," the source said.

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