Canadian Railway, Zimmer bring deals; Jefferies bucks sector weakness; telecom bonds widen

By Sheri Kasprzak and Cristal Cody

New York, Nov. 7 - It was an active day for the high-grade primary market, with a few major deals pricing and more announced for the week's pipeline.

Heading up the action, the Canadian National Railway Co. brought to market $700 million of notes in two tranches, said a term sheet.

The offering included $300 million of five-year notes and $400 million of 10-year notes.

The five-year notes are due Dec. 15, 2016 and were priced at a spread of Treasuries plus 75 bps. The 1.45% notes were priced at 99.236 to yield 1.607%. They feature a make-whole call at any time at Treasuries plus 15 bps.

The 10-year notes are due Dec. 15, 2021 and were priced at a spread of Treasuries plus 95 bps. The 2.85% notes were priced at 99.339 to yield 2.947%. Those notes also feature a make-whole call at any time at Treasuries plus 15 bps.

The notes (A3/A-/) were sold through joint bookrunners Citigroup Global Markets Inc. and J.P. Morgan Securities LLC.

The proceeds will be used to repay all of the company's outstanding commercial paper, as well as to fund general corporate needs.

Bonds widen

Investment-grade bonds traded mostly weaker on Monday and trading volume stayed light at the start of the week.

The Markit CDX Series 17 North American high-grade index eased 1 basis point to a spread of 124 bps on Monday.

"Everything's a little wider today," a trader said.

Overall trading volume dropped to about $8 billion on Monday.

Bank and financial paper widened 15 bps to 20 bps on the day, with Jefferies Group, Inc.'s debt among the exception, a trader said.

"Jefferies paper is better by a point today," the trader said.

The New York City-based securities and investment bank ended the previous week as the top trading name in the market.

Investment-grade bank and broker credit default swaps costs rose on Monday, indicating less confidence in the sector, a source said.

Bank CDS traded unchanged to 7 bps higher, while brokerage CDS were flat to 10 bps higher.

The telecom sector traded 5 bps to 20 bps wider, with the weakness in trading led by Time Warner Cable Inc. and DirecTV Holdings LLC and DirecTV Financing Co., Inc., the trader said.

Dr. Pepper Snapple Group, Inc.'s notes traded stronger, while Zimmer Holdings Inc.'s notes stayed flat and UnitedHealth Group Inc.'s new bonds traded in the gray markets in the late afternoon.

Amgen's CDS costs were weaker on the company's deal news. The CDS were quoted going out 15 bps wider, a trader said.

Treasuries were mixed. The 10-year note yield ended unchanged at 2.03%. The 30-year bond yield rose 1 basis point to 3.1%.

Zimmer brings $550 million

In other pricing news, Zimmer Holdings sold $550 million of senior notes, also in a two-tranche deal, according to a term sheet.

The notes (Baa1/A-/) were sold through joint bookrunning managers Merrill Lynch, Pierce, Fenner & Smith Inc.; BNP Paribas Securities Corp.; and RBS Securities Inc.

The deal included $250 million of three-year notes and $300 million of 10-year notes.

The three-year notes are due Nov. 30, 2014 and have a 1.4% coupon with a spread of Treasuries plus 105 bps. The notes were priced at 99.928 to yield 1.424%. The notes feature a make-whole call at any time at Treasuries plus 15 bps.

The 10-year notes are due Nov. 30, 2021 and have a 3.375% coupon and a spread of Treasuries plus 140 bps. The notes were priced at 99.821 to yield 3.396%. The notes are callable before Aug. 30, 2021 at Treasuries plus 20 bps. On or after Aug. 30, 2021, the notes are callable at par.

The proceeds from the sale will be used to repay a portion of the company's borrowings under its credit facilities and for general corporate purposes.

In the secondary market, the notes due 2014 traded wrapped around issuance at 105 bps bid, 99 bps offered, a trader said.

The tranche of notes due 2021 also were flat in trading at 140 bps bid, 134 bps offered.

Based in Warsaw, Ind., Zimmer designs, develops, manufactures and markets orthopedic, reconstructive, spinal and trauma devices, dental implants and related surgical products.

Dr. Pepper Snapple prices

Elsewhere during the session, the Dr. Pepper Snapple Group came to market with $500 million of senior notes in two tranches, said a term sheet.

The notes (Baa1/BBB/) were sold through joint bookrunners Deutsche Bank Securities Inc., Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co.

The deal included $250 million of seven-year notes and $250 million of 10-year notes.

The seven-year notes are due Jan. 15, 2019 and have a 2.6% coupon priced at a spread of Treasuries plus 120 bps. The notes were priced at 99.912 to yield 2.613%. These notes are not callable.

The 10-year 3.2% notes are due Nov. 15, 2021 and were priced at a spread of Treasuries plus 125 bps. The notes were priced at 99.72 to yield 3.233%. The notes are callable on or after Aug. 15, 2021 at par.

The proceeds from the offering will be used retire at maturity the company's 1.7% senior notes, which are due Dec. 21, 2011. The remainder will be used for general corporate purposes.

On Monday, Standard & Poor's released a statement that its BBB rating reflects the agency's opinion that the company has a "satisfactory" business risk profile.

"Our assessments incorporate [Dr. Pepper Snapple]'s position as the third-largest soft drink company in North America, and its good brand recognition and cash flow generation," wrote the S&P analysts.

"However, [its] relatively narrow business and geographic focus and participation in the mature and low-growth markets in which it competes somewhat temper these factors."

In early secondary trading after pricing, the seven-year notes firmed about 1 bp to 119 bps bid, 114 bps offered, a trader said.

The tranche of 10-year notes firmed to 124 bps bid, 119 bps offered.

Both tranches were seen trading stronger ending the day, another trader said.

The notes due 2016 tightened to 119 bps bid, 115 bps offered.

Dr. Pepper's new 10-year notes traded at 123 bps bid, 120 bps offered, the trader said.

Based in Plano, Texas, Dr. Pepper Snapple Group manufactures and distributes non-alcoholic drinks, including flavored, carbonated and non-carbonated beverages.

Amgen preps $6 billion deal

Looking ahead, Amgen Inc. announced plans on Monday to price $6 billion of senior notes in four tranches, said a market source familiar with the sale.

The offering includes $1 billion of three-year notes, $1 billion of five-year notes, $1.75 billion of 10-year notes and $2.25 billion of 30-year notes.

The joint bookrunners for the sale are Bank of America Merrill Lynch, Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and Citigroup Global Markets Inc.

The proceeds from the notes (A3/A+/A+) will be used for the company's stock repurchase program and for general corporate purposes.

Located in Thousand Oaks, Calif., Amgen manufactures and markets human therapeutics based upon advances in cellular and molecular biology.

Teva to sell $4 billion

Also coming up, Teva Pharmaceutical Finance Co. BV is expected to bring to market during the week $4 billion of senior notes in five tranches, said market insiders.

The deal includes $200 million of 1.5-year floating-rate notes, $1.1 billion of three-year notes, $950 million of five-year notes, $875 million of 10-year notes and $875 million of 10-year notes.

The notes (A3/A-/) will be offered through joint bookrunners Barclays Capital Inc., Citigroup Global Markets Inc., Goldman, Sachs & Co. and Morgan Stanley & Co. LLC. The co-managers are BNP Paribas, Credit Suisse Securities (USA) LLC, HSBC USA Inc. and J.P. Morgan Securities LLC.

The proceeds from the offering will be used to repay borrowings under an unsecured bridge loan agreement from June of 2011, which are due on Dec. 13, 2011; to repay borrowings under an unsecured bridge loan from September of 2011, which are due March 9, 2012; to repay borrowings under the company's amended and restated senior unsecured revolving credit agreement from June of 2011, which are due June 13, 2014; and to repay borrowings under its amended and restated unsecured revolving credit agreement, which are due Jan. 20, 2014.

The remainder will be used for the conversion of 2% convertible senior subordinated notes due June 1, 2015 and for general corporate purposes.

Based in Petach Tivka, Israel, Teva Pharmaceutical Finance is the financing arm of Teva Pharmaceuticals, which makes generic forms of drugs in all major therapeutic categories.

Covered bonds

Covered bonds, which have widened more than 50 bps since August, are getting a closer look these days for the value as bond spreads widen on the European sovereign debt crisis, BMO Capital Markets strategists said in a research note on Monday.

"These higher quality credit spreads have followed the widening of unsecured corporates," the strategists said.

Covered bonds are sold and guaranteed by the creditworthiness of the issuing financial institutions, BMO noted, and the bonds also are covered by an over-collateralized, bankruptcy remote collateral pool of assets.

European and Canadian issuers historically have dominated issuance in the sector, but as investors shy away from European risk, Canada's share has jumped, the BMO strategists said.

"More than half of the nearly $45 billion in U.S. dollar-denominated issuance in 2011 has come from Canadian institutions," BMO said.

Canadian issuers have been active in the U.S. covered bond market over the last two months.

In October, Bank of Montreal sold $2 billion of 1.3% three-year covered bonds (Aaa/AAA) at Treasuries plus 84.9 bps and National Bank of Canada raised $1.4 billion in the sale of 2.2% five-year covered bonds (Aaa/AAA/AAA) at Treasuries plus 104.5 bps.

Toronto-Dominion Bank was in the market in September with $5 billion of covered bonds (Aaa/AA-) in two tranches. The $2 billion of 0.875% three-year notes priced at a spread of Treasuries plus 58.4 bps. The $3 billion of 1.625% five-year notes sold at 73.4 bps over Treasuries.

Also in September, Canadian Imperial Bank of Commerce sold $2 billion of 0.9% three-year covered bonds (Aaa/AAA/AAA) to yield Treasuries plus 58.7 bps.

"Investors find value in Canadian financial institutions due to the strong financial system, close ties to the U.S., relative separation from a turmoil-filled euro zone, and the Canadian government collateral guarantee (with the exception of Royal Bank bonds)," according to the BMO note. "Investments in Canadian financials out to 3.5 years pick up most of the high-grade covered bond spread."

DirecTV eases

In trading on Monday, DirecTV's 5% notes due 2021 eased 20 bps to 193 bps bid, 183 bps offered, a trader said.

The notes (Baa2/BBB/BBB-) were sold in a $1.5 billion offering at 155 bps over Treasuries on March 7.

The satellite TV company is based in El Segundo, Calif.

Time Warner Cable widens

Along with other paper in the telecom sector, Time Warner Cable's bonds widened on Monday.

Time Warner Cable's 4% notes due 2021 traded 20 bps wider at 190 bps bid, 180 bps offered on Monday, a trader said.

The New York City-based entertainment company sold the 10-year notes on Sept. 7 at a spread of Treasuries plus 210 bps.

'A lot of volume' for Sprint

A trader saw Sprint Nextel Corp.'s new 9% notes due 2018 at 101 bid, 101½ offered, while its new 11½% notes due 2021 were at 101½ bid, 102 offered.

The Overland Park, Kan.-based wireless carrier's $3 billion tranche of the 2018 bonds and $1 billion of 2021 bonds both priced at par on Friday, after having been greatly upsized - the 2018s from an original size range of $2 billion to $2.5 billion, and the 2021s from the originally planned $500 million.

Among its existing paper, he saw the 6% notes due 2018 closing down 1 point, at 86½ bid, 87¼ offered, on "a lot of volume."

The trader also saw Sprint's majority-owned Clearwire Corp. unit's 12% subordinated notes due 2017 at 58-61, which he called up 1 point. The two issues of 12% notes due 2015 ended at 84-86, where they were earlier in the morning.

"So for the most part, they're pretty much unchanged," he opined. "They were quoted all day long, but how much they traded, I don't know."

Active MF Global junk

A trader said that MF Global Holdings Ltd. "has been coming in" during Monday's session.

He said that earlier in the day, the bankrupt New York-based broker-dealer company's 6¼% notes due 2016 were trading around the 40 bid level. But later in the afternoon, he saw the bonds "offered as cheap as" 381/2.

The bonds ultimately went out, though, at 39½ bid. He said that more than $23 million of the bonds traded, making it one of Junkbondland's most active issues.

The trader said the company's other paper, including its 9% bonds due 2038, 1 7/8% convertible notes due 2016 and the 3 3/8% convertible notes due 2018, all were converging down below 40 bid after "bouncing around" in the lower 40s last week.

Another trader called the company's bonds perhaps 1 or 2 points lower versus their morning levels.

He saw the 61/4s trading during the session in a context between 36-88, and noted the convergence of all of the issues. "The converts ended around there too," he said.

The trader said there was "good volume in the name," adding that the 61/4s had most of the volume.

Jefferies still looks junky

A trader saw Jefferies Group's nominally investment-grade rated paper still trading at junk-like levels after their steep fall last week, although he said that most of its bonds were up between 1 and 1½ points on the day.

Even so, he said there are concerns that the New York-based investment bank's 7¾% notes due March 15, 2012 are still trading at a 9.6% yield, equivalent to a spread of 940 basis points over comparable Treasuries.

This "seems pretty cheap for something that should be money-good in four months," the trader said.

A second trader said the company's 6¼% bonds due 2036 were trading between 79 and 81, which he called unchanged from Friday.

He saw "a lot of volume in that name," with the 5 1/8% notes due 2018 around 85-86. The notes saw "real decent volume, a lot of size trades," the trader said.

A market source at another desk said that the paper coming due in March was trading at just over 99¼ bid, which he called up a half-point on the day, with the spread tightening about 145 bps on the day from Friday to go out at 960 bps over, on volume of nearly $90 million.

But that source also saw Jefferies Group's 6 7/8% notes due 2021 down 1 3/8 points on the day to 87½ bid, or a spread of nearly 700 bps over, a 28 bps widening from Friday. More than $65 million of the bonds changed hands on Monday.

And its 8½% notes due 2019 saw active trading of more than $33 million, going home at just under 98, a gain of nearly 1 point and a pickup of about a dozen basis points in spread to around the 730 bps level.

Dynegy down

A trader said there was "not a huge amount of trading" in Dynegy Holdings LLC paper, although he saw its 7 1/8% notes due 2018 down 2½ points, trading at 64½ bid.

Another trader cited market scuttlebutt that the Houston-based power generating company might be heading toward a bankruptcy filing, following the abject failure of its effort to get rid of up to $1.25 billion face amount of its more than $3 billion of bond debt via an exchange offer.

That offer, having drawn little or no response from over 97% of the bondholders, was formally withdrawn on Friday.

The trader said that he had heard someone say "[Dynegy] could file [as early as] tonight."

The trader saw Dynegy's 7¾% notes due 2019 quoted a point lower at 65 bid, 67 offered. Its 7½% notes due 2015 were quoted about 7072, but on not much trading, the trader said.

He said that he didn't see a lot of quotes in their bonds, but did see a lot of CDS traded, referring to the credit-default swaps contracts bondholders buy to protect against a possible event of default.

The company did announce late Monday its Chapter 11 filing and restructuring of $1.4 billion worth of senior notes.

Paul Deckelman contributed to this review

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