High-grade issuers shake off worries; Intel, PNC, AmEx among deals; Southern Power firms

By Andrea Heisinger and Cristal Cody

New York, Sept. 14 - An explosion of new bonds hit the high-grade primary on Wednesday after two days of minimal issuance on market uncertainty.

Some deals from Hewlett-Packard Co. and American Honda Finance Co. paved the way on Tuesday, giving confidence to the flood of issuers that chose to tap the market right off the bat Wednesday.

One of the larger sales came from Intel Corp. in what was its first non-convertible bond sale. The semiconductor chip maker sold $5 billion of notes in three maturities - a much larger amount than the initial minimum of $1.5 billion.

American Express Credit Corp. sold $1.3 billion of five-year notes while another financial, PNC Funding Corp., priced $1.25 billion of five-year paper.

Mining company Rio Tinto plc arm Rio Tinto Finance (USA) Ltd. sold $2 billion of notes in three tranches. There were $500 million of five-year notes, $350 million of 10-year notes and a reopening of the company's 5.2% notes due 2040 to add $1.15 billion. All of the paper is guaranteed by Rio Tinto plc and Rio Tinto Ltd.

Full terms for the sale weren't available at press time.

There were two sales from future spin-offs of diversified manufacturing company ITT Corp.

Defense technology unit Exelis Inc. priced $650 million of debt with 10- and-30-year maturities. Water technology arm Xylem Inc. priced $1.2 billion of five- and-10-year senior notes. Both were priced under Rule 144A and Regulation S and will be guaranteed by ITT until their spin-offs are completed.

There were plenty of smaller deals, mostly from utility and energy names.

PSEG Power LLC sold $500 million of senior notes in two tranches that are guaranteed by the energy supply company's subsidiaries.

O'Reilly Automotive, Inc. priced $300 million of 10-year senior notes with a guarantee from subsidiaries.

Southern Co. subsidiary Southern Power Co. priced $300 million of 30-year bonds while DCP Midstream LLC sold an upsized $500 million of 10-year notes under Rule 144A and Regulation S. The size was increased from $400 million. Full terms were not available for the deal at press time.

There was a split-rated deal from Textron Inc. The multi-industry company sold $500 million of five- and 10-year paper.

On the sovereign side, there was a $2 billion deal of five-year notes from the Province of Ontario.

There were two preferred stock sales for the day - both of which went overnight from Tuesday.

Qwest Corp. sold $500 million of 40-year paper at par of $25. There was also a $75 million deal of 8% perpetual preferreds from Pebblebrook Hotel Trust.

New paper tightens

Intel's bonds and American Express Credit's new paper were seen tighter on the offer side in trading.

Also in the secondary market, Southern Power's new notes firmed 8 basis points.

Overall trading volume was mostly flat at about $12 billion.

A trader saw CDS costs for protecting holders of bank debt fall between 8 basis points and 25 bps while CDS costs for contracts protecting holders of paper issued by investment banks fell between 20 bps and 30 bps, indicating increased investor confidence in the financial sector.

Goldman Sachs' costs were seen 30 bps lower at 220/235 bps. Morgan Stanley was seen 20 bps lower at 310/325 bps. Citi's CDS costs dropped 25 bps to 220/235 bps. JPMorgan's CDS costs were quoted 8 bps lower at 117/123 bps.

The Markit CDX Series 16 North American high-grade index improved 2 bps to a spread of 129 bps.

Treasuries ended mostly lower to unchanged on the short to mid range of the curve. The benchmark 10-year Treasury note yield was flat at 1.99%. The 30-year bond yield fell 6 bps to 3.27%.

Tone improves, as do issuers

The market tone was agreeable enough at the open to unleash deals that had been held up from Monday and Tuesday's questionable conditions.

"It was better today, but I wouldn't call it great," a source said of the market in general. "Honestly, we were so busy today and had our heads down that it was hard to notice if things were up or down."

A syndicate source who worked on two of the day's sales said that it was "crazy busy" and that as a consequence two sales were held for Thursday.

There aren't quite as many deals expected for the coming day as supply dwindles.

"It should quiet down tomorrow," a source said. "I'm not hearing of too many things."

AmEx unit sells tight

American Express Credit sold $1.3 billion of 2.8% five-year senior medium-term notes (A2/BBB+/A+) to yield Treasuries plus 192 bps, an informed source said.

The notes were priced at the low end of guidance in the 195 bps area.

Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and RBS Securities Inc. were the bookrunners.

Proceeds will be used for general corporate purposes.

AmEx Credit last priced debt in a $600 million deal of three-year floating-rate notes on June 17.

In the secondary market, American Express Credit's notes due 2016 traded going out at 186 bps offered.

The arm of financial services company American Express Co. is based in New York City.

Intel prices $5 billion

Intel sold $5 billion of senior notes (A1/A+) in three tranches by late afternoon, a source close to the sale said.

The sale went "very well" and was more than two times oversubscribed with about $11 billion on the books, the source said. Interest was skewed more toward the five- and 10-year notes, he added.

The $1.5 billion of 1.95% five-year notes were priced at a spread of Treasuries plus 110 bps.

A second tranche was $2 billion of 3.3% 10-year notes sold at a spread of 135 bps over Treasuries.

The third part was $1.5 billion of 4.8% 30-year bonds sold at Treasuries plus 160 bps.

Bank of America Merrill Lynch, Citigroup Global Markets Inc. and Goldman Sachs & Co. were the bookrunners.

Proceeds will be used to repurchase common stock and for general corporate purposes.

In the secondary market, the notes due 2016 traded at 102 bps offered, while the notes due 2021 were quoted at 127 bps offered. The third tranche was seen at 150 bps offered.

The semiconductor chip maker is based in Santa Clara, Calif.

PNC's $1.25 billion

PNC Funding sold $1.25 billion of 2.7% five-year senior notes (A3/A/A+) to yield Treasuries plus 185 bps, a source away from the trade said.

The paper was priced at the tight end of guidance in the 190 bps area, plus or minus 5 bps.

Bookrunners were Bank of America Merrill Lynch and J.P. Morgan Securities LLC.

Proceeds are being used for general corporate purposes, including funding the pending RBC Bank USA acquisition.

The notes are guaranteed by PNC Financial Services Group, Inc.

PNC Funding last priced paper in a $750 million offering of 10-year notes on Aug. 4, 2010.

The subsidiary of financial services company PNC Holding, LLC is based in Pittsburgh.

PSEG sells $500 million

PSEG Power priced $500 million of senior notes (Baa1/BBB) in two tranches, an informed source said.

A $250 million tranche of 2.75% five-year notes was priced at a spread of Treasuries plus 190 bps.

The second part was $250 million of 4.15% 10-year notes priced at Treasuries plus 215 bps.

Barclays Capital Inc., Citigroup, Morgan Stanley & Co. LLC and Wells Fargo Securities LLC were the bookrunners.

Proceeds will be used for general corporate purposes.

The notes are guaranteed by subsidiaries Nuclear, Fossil and ER&T.

The energy supply company is based in Newark, N.J.

O'Reilly prices at talk

O'Reilly Automotive sold $300 million of 4.63% 10-year senior notes to yield Treasuries plus 262.5 bps, a market source said.

The notes (Baa3/BBB-) were priced in line with guidance in the 262.5 bps area.

Bookrunners were Bank of America Merrill Lynch and JPMorgan.

Proceeds will be used for general corporate purposes, including the repurchase of common stock, to repay borrowings under a credit facility and to pay related fees and expenses.

The notes are guaranteed by the company's subsidiaries.

The specialty auto parts retailer is based in Springfield, Mo.

ITT spin-offs plan deals

Two deals from future spin-offs from ITT Corp. are in the market with sales.

The offerings went overnight due to it being a first-time sale with no outstanding bonds to use for guidance, and because of the sheer number of sales in the market for the day, a source said.

Exelis announced a $650 million sale of notes (Baa3/BBB/BBB+) in two tranches, an informed source said.

The offering consists of $350 million of 10-year notes and $300 million of 30-year bonds

Barclays Capital, Citigroup and JPMorgan are the bookrunners.

The notes were offered under Rule 144A and Regulation S.

Proceeds are being used for general corporate purposes, including working capital and a special distribution to parent company ITT Corp.

The notes are guaranteed by ITT until Exelis' split from the company.

The defense technology segment, and eventual spin-off, from diversified manufacturing company ITT is based in White Plains, N.Y.

Xylem announced a $1.2 billion offering of senior debt (Baa2/BBB/BBB) in two tranches, a market source said.

The company is pricing five- and 10-year tranches of paper.

JPMorgan, RBS Securities Inc. and Wells Fargo Securities are on the books.

The sale is being done under Rule 144A and Regulation S.

Proceeds are being used for general corporate purposes and to pay a special cash distribution to parent company ITT Corp.

The notes are guaranteed by ITT until the segment's split from the company.

The water technology segment, and eventual spin-off, from diversified manufacturing company ITT is based in White Plains, N.Y.

Southern Power's long bonds

Southern Power sold $300 million of 5.15% 30-year series 2011A senior notes (Baa1/BBB+/BBB+) to yield Treasuries plus 190 bps, according to an FWP filing with the Securities and Exchange Commission.

JPMorgan, Mizuho Securities USA Inc., RBS Securities and UBS Securities LLC were the bookrunners.

Proceeds will be used to repay a portion of outstanding short-term debt and for general corporate purposes, including the company's continuous construction program.

The new Southern Power notes due 2030 traded at 182 bps offered.

The electric subsidiary of Southern Co. is based in Atlanta.

Textron prices $500 million

Textron offered $500 million of split-rated senior notes (Baa3/BBB-/BB+) in two tranches, a source close to the sale said.

The $250 million of 4.625% five-year notes priced at a spread of Treasuries plus 375 bps.

The $250 million tranche of 5.95% 10-year notes priced at Treasuries plus 400 bps.

Active bookrunners were Bank of America Merrill Lynch, Citigroup and JPMorgan.

Proceeds are going for general corporate purposes, including debt repayment and repurchase which includes convertible notes purchased in a tender offer.

Textron last sold debt in a $600 million offering in two tranches on Sept. 14, 2009.

The multi-industry company has units including aircraft, defense and finance. It is based in Providence, R.I.

Ontario sells five-year

The Province of Ontario sold $2 billion of 1.6% five-year bonds (Aa1/AA-) to yield Treasuries plus 75.35 bps, or mid-swaps plus 44 bps, according to an FWP filing with the SEC.

Bookrunners were Bank of America Merrill Lynch, Barclays Capital, Goldman Sachs and RBC Capital Markets LLC.

The issuer is based in Toronto.

Qwest's $25-par notes

Qwest priced a $500 million offering of 7.5% $25-par 40-year senior unsecured notes, according to a trader.

The deal (Baa3/BBB-/BBB-) was upsized to $500 million from $250 million, and the trader said the deal was well received. There is also an over-allotment option of $75 million.

Bank of America Merrill Lynch, Morgan Stanley, UBS Securities and Wells Fargo Securities are the joint bookrunners.

Proceeds from the sale will be used to redeem a portion of the company's $1.5 billion outstanding 8.875% notes.

Qwest, now known as CenturyLink, is a Monroe, La.-based telecommunications provider.

Paul Deckelman and Stephanie N. Rotondo contributed to this review

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