TC PipeLines deal mimics rival's bond sale; FUEL Trust brings $1 billion of notes; Gap widens

By Sheri Kasprzak and Cristal Cody

New York, June 15 - As economic instability continues, investors are flocking to investment-grade securities over risky high-yield credit markets, market insiders reported on Wednesday.

Jody Lurie, corporate credit analyst at Janney Montgomery Scott LLC, reported that risk aversion in the increasingly unstable economy could be inviting investors to seek out more secure investment-grade offerings.

Meanwhile, Lurie noted that TC PipeLines LP's offering $350 million of senior notes, which priced on Tuesday, was priced comparatively to competitor Spectra Energy Partners' recent $250 million note deal priced last week.

Elsewhere, FUEL Trust Securities, a division of Ford Motor Co., reportedly priced on Tuesday $1 billion of upgrade exchange-linked notes, said a term sheet.

Overall trading volume dropped 15% to about $13 billion, according to a market source.

"New issue markets were pretty silent and spreads were wider. Trading was pretty quiet today, but there's a decidedly negative tone in the market," a bond source said.

"We saw spreads wider pretty much across the financial complex. Spreads on banks were wider by generally 2 to 5 basis points for the larger institutions."

The Markit CDX Series 15 North American investment-grade index eased 3 bps to a spread of 100 bps, according to Markit Group Ltd.

Gap Inc.'s bonds traded heavily on Wednesday and went out about 8 bps wider, according to market sources.

CenturyLink, Inc.'s 10-year notes also were active in trading, though not as heavily as they were when they widened soon after pricing the previous week, according to a bond source.

"We've seen a fair number of new issue deals up in the hands of flippers. That makes the spreads a little more volatile as flippers resell into the secondary markets," the source said.

Treasuries rallied in a risk-on, risk-averse day due to a series of weaker economic data, sending yields back about 10 basis points across the curve. The benchmark 10-year Treasury note yield fell 13 bps to 2.97%, and the 30-year bond yield dropped 10 bps to 4.2%.

Two deals are similar

"The pricing isn't surprising, as TC PipeLines' offering mimics Spectra Energy's in many ways," Lurie wrote.

"Both companies plan to use proceeds for repaying loans brought on with recent acquisitions. TC PipeLines' notes priced at 3 bps tighter spread versus Spectra Energy's offering, as Moody's one-notch-higher rating offset the smaller size of the company and debut nature of the [TC PipeLines] offering."

The TC bonds (Baa2/BBB/) are due June 15, 2021 and have a spread of Treasuries plus 157 bps. The 4.65% notes were priced on Tuesday at 99.834 to yield 4.671%.

The joint bookrunners were J.P. Morgan Securities LLC and SunTrust Robinson Humphrey Inc.

Proceeds will be used to repay a $61 million bridge loan and $110 million borrowed under the revolver portion of the company's credit facility associated with the acquisition of a 25% interest in each of the Gas Transmission Northwest LLC and Bison Pipeline LLC. The remainder will be used to repay other term loans.

TC PipeLines, based in Omaha, was formed by TransCanada PipeLines Ltd to own and manage natural gas pipelines and assets.

FUEL Trust bonds price

FUEL Trust Securities' $1 billion of notes (Baa2/BBB-/) are due June 17, 2016 and have a spread of Treasuries plus 230 bps. The 3.984% notes were priced at par.

If Moody's, Standard & Poor's or Fitch upgrades Ford Motor Credit's rating to investment grade, the FUEL Trust notes will be exchanged for Ford Motor Credit senior unsecured notes. Ford Motor Credit is current rated Ba2 by Moody's, BB- by S&P and BB by Fitch.

The joint bookrunners for the 144A private placement were Bank of America Merrill Lynch, Barclays Capital Inc., J.P. Morgan Securities LLC and RBS Securities LLC.

Proceeds will be used for general corporate purposes.

Gap widens

In the secondary market, "Gap's 5.95% 21s were pretty active this morning," one bond source said. "Roughly $41 million traded. Spreads were all over the place actually, generally wider by about 4 to 5 basis points."

Gap's 5.95% notes due 2021 were quoted closing out the day at a spread of 339 bps over Treasuries. The notes (Baa3/BB+/BBB-) priced on April 7 at a spread of 245 bps plus Treasuries.

"Looks like the current market is bid around 8 basis points wider on the day," the bond source said.

The clothing retailer is based in San Francisco.

CenturyLink firmer

CenturyLink's 6.45% 10-year senior notes (Baa3/BB/BBB-) again tightened on Wednesday in trading, narrowing to 352 bps over Treasuries, according to a bond source.

The notes traded on Tuesday at 355 bps bid, 345 bps offered.

CenturyLink sold the bonds on June 9 at 150 bps over Treasuries.

"It's about 2 basis points wider than new issue spread, largely in line with the markets," the bond source said.

The integrated communications company is based in Monroe, La.

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