Enterprise Products Operating sells large deal; investors eager for paper; Xcel Energy tightens

By Andrea Heisinger and Cristal Cody

New York, May 11 - The pace slowed a bit on Tuesday as Enterprise Products Operating LLC brought the investment-grade bond market's only new deal.

The midstream energy company sold a reallocated $2 billion of senior notes in three tranches. The sale was originally made up of 10-year and 30-year tranches, but five-year notes were later added.

Each tranche tightened in secondary trading, according to a source.

New bonds were mostly shut down after a promising start to the week. The tone of the previous week returned, with volatility coming from multiple directions.

"We'll see what we can get done tomorrow," one market source said.

It was thought issuance would pick up as the window opened on the bailout package for Greece, but that was not the case on Tuesday.

In next-day trading, San Diego Gas & Electric Co.'s new 5.35% series HHH first mortgage bonds widened, while Xcel Energy Inc.'s 4.7% notes tightened, according to a source.

Overall Trace volume in the investment-grade market rose 7% to about $12 billion, according to a source.

Retail investors continue to remain interested in high-grade debt, especially as default concerns overseas push more interest toward Treasuries, a source said.

Treasuries were mostly tighter Tuesday on the first of a three-day refunding after moving out more than 10 basis points the day before in reaction to the nearly $1 trillion loan package from the European Union and International Monetary Fund to prevent a eurozone debt default.

Yields on the five-year notes ended 3 bps tighter at 2.23%, while yields on the 10-year benchmark note were 1 bp tighter at 3.53%. Yields on the 30-year Treasury bond eased 1 bp to 4.42%.

The Treasury auctioned $38 billion in three-year notes priced at a yield of 1.414% to strong demand, a source said. The Treasury also plans to auction $24 billion in 10-year notes on Wednesday and $16 billion in 30-year bonds on Thursday.

The $78 billion refunding is down from $81 billion auctioned in February and is the Treasury's first reduction in more than two years.

Looking back at the investment-grade market, the CDX Series 14 North American high-grade index was unchanged at a mid bid-asked spread level of 100 bps, according to a source.

Enterprise Products reallocates

Houston-based Enterprise Products Operating priced $2 billion of senior unsecured notes (Baa3/BBB-/BBB-) late in the afternoon in a reallocated three tranches, an informed source said.

The deal was originally announced in two tranches, with the five-year notes later added due to reverse inquiry.

That $400 million tranche of 3.7% five-year notes priced at a spread of Treasuries plus 150 bps. They came in tight to talk of 15 bps to 20 bps less than where the 10-year notes priced.

The $1 billion tranche of 5.2% 10-year notes priced at Treasuries plus 170 bps. Guidance was in the 170 bps area.

A $600 million tranche of 6.45% 30-year bonds sold at a spread of 205 bps over Treasuries. They also priced in line with guidance in the 205 bps area.

A source who worked on the sale said that "it was a strong credit, and [the] investor base was eager to buy" the bonds. They weren't able to fully price the bonds off the company's outstanding notes because "the market's been volatile and there's not a tone of transparency where the secondary is trading," he said.

There was little competition in the market for the day, making investors even more interested in the bonds.

The tranches each "got a good spread," a market source said. He added that the new issue concession seemed to be "pretty low for a BBB [rated company]."

The notes are guaranteed by Enterprise Products Partners LP.

The bookrunners were Citigroup Global Markets, Mizuho Securities, RBS Securities, Scotia Capital, SunTrust Robinson Humphrey and Wells Fargo Securities.

Proceeds are being used temporarily to reduce borrowings under a multi-year revolving credit facility, to repay outstanding amounts of $500 million in senior notes at maturity in June and for general corporate purposes.

High-grade primary struggles

The optimism that started the week seemed to have slightly soured by the end of Tuesday as volatility returned to investment-grade bonds.

A window of issuance that brought three deals to the market at the top of the week also seemed to have shut.

Spreads had widened and given back any gains made on Monday, a source said.

"New issues pretty much shut down," he said. "It's the same old stuff again."

Enthusiasm over the $1 trillion bailout package for Greece was somewhat overshadowed by fears that it's not enough to stave off long-term economic troubles in Spain, Portugal and other countries.

"It kind of went sour a little bit today," the source said.

A source who worked on the Enterprise deal said that issuance is still day to day.

"The Dow futures were down 100 points this morning, and they kind of bounced back," he said. "The credit markets followed."

A syndicate source pointed out that there are indeed issuers patiently waiting to get into the market, but they're not given a go-ahead call due to the renewed volatility.

"Some of them have been waiting a while," he said.

Retail investor interest strong

Retail investors remain undeterred by the overseas debt concerns when it comes to the bond market - particularly for U.S. bonds, a high-grade retail bond trader told Prospect News on Tuesday.

"Retail continues to stay stable," the source said. "The widening occurred mostly because Treasuries rallied and widened the spread to corporates. Retail accounts still have money to invest in bonds."

The markets plummeted in trading on Thursday, with the Dow Jones Industrial Average off by almost 1,000 points in an as yet unexplained loss. Regulators worked on Tuesday to prevent a future freefall across stock and securities markets, and six major U.S. securities exchanges agreed to a system to slow trading during steep drops.

"All the volatility in the stock market certainly helps the bond market a little bit," the trader said. "There's a pessimism on the companies and economic growth, but optimism on what that translates into for bond yields, especially U.S. bond yields with the potential for flight to quality from potential overseas defaults."

In fact, "retail investors keep getting money stuffed into their pockets from calls on corporate bonds, mortgages. If that continues to happen, they're going to have money to spend, so I'll think we'll see good interest," the trader said.

Enterprise Products tightens

Enterprise Products' new $2 billion offering was stronger in secondary trading, according to a source.

The $400 million in five-year notes, which priced at Treasuries plus 150 bps, firmed to 147 bps bid, 140 bps offered.

The second tranche of $1 billion in 10-year notes firmed to 169 bps bid, 162 bps offered after pricing at Treasuries plus 170 bps, the source said.

Enterprise Products priced $600 million in the last tranche of 30-year bonds at Treasuries plus 205 bps. The bonds were last seen at 198 bps offered, the source said.

Xcel Energy firms

Xcel Energy's $550 million offering of 4.7% notes (Baa1/BBB/BBB+) tightened in trading on Tuesday to 115 bps over Treasuries, according to a trader.

The notes due 2020 priced on Monday to yield Treasuries plus 120 bps. Later that day, the notes were quoted trading at 123 bps bid, 115 bps offered.

"Earlier in the day" on Tuesday, the notes were seen at 122 bps bid, 118 bps offered, the trader said.

Xcel Energy is a public utility holding company based in Minneapolis.

San Diego Gas & Electric widens

San Diego Gas & Electric's $250 million offering of 5.35% series HHH first mortgage bonds (Aa3/A+/AA) were seen wider, a trader said.

The bonds due 2040 priced on Monday to yield Treasuries plus 95 bps and were quoted later that day trading tighter at 91 bps bid, 89 bps offered.

On Tuesday, the bonds from the San Diego-based electric and natural gas provider moved out to 93 bps bid, 92 bps offered.

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