Sumitomo Mitsui sells with support from Asia; XL announces sales; bank callable paper active

By Andrea Heisinger and Cristal Cody

New York, July 18 - There was some hangover from the disappointing results of a stress test on European banks released on Friday, but there was still one deal making its way into the high-grade market on Monday.

Sumitomo Mitsui Banking Corp. sold $2 billion of bonds in three tranches in the financial company's first bond sale since January.

Earnings season on top of a lack of a resolution in the U.S. debt ceiling talks by Congress contributed to an otherwise quiet market, sources said.

XL Group plc announced in a press release that it would both sell 10-year notes and remarket existing debt due in 2021 through two subsidiaries. Timing wasn't given for the sale of new debt.

It's unclear what will be priced on Tuesday, but the high-grade primary is unlikely to be swamped by new deals, a syndicate source said.

Asia's markets were strong on Monday, giving the day's two U.S. high-grade issuers from Korea and Japan a push to sell dollar-denominated bonds.

"We need improvement," the syndicate source said. "Credit underperformed today. No one's probably going to get the go-ahead to sell [debt] right now."

Monday saw weaker bonds in general and overall trading volume of about $8 billion.

The Markit CDX Series 15 North American investment-grade index eased 2 basis points to a spread of 99 bps, according to Markit Group Ltd.

In the secondary market, trading in callable paper is up, one bond trader said.

"We've done a lot of JPMorgan callable paper, Bank of America callable paper and GE [Capital] - longer maturities with short call," the trader said. "Some of those guys are not calling their paper, and you get a lower dollar price on some relatively high fixed coupons just because of the possibility of being called."

That sits well with investors "who don't care about maturity," the source said. "You have to be the type of investor looking to maximize your income and not so worried about the rate of return."

For example, trading activity is up in JPMorgan Chase & Co.'s 6.05% subordinate bonds due November 2037, which are not callable until November 2012, the trader said. The New York City-based financial services company's bonds were quoted trading at 101.50 with a 5.93% yield to maturity.

"So you get a little over a year of call protection and if it gets called on Nov. 15, 2012, the yield to call is still 4.87%," the trader said.

Treasuries ended mostly flat with losses higher on the long end of the curve on Monday. The 30-year bond yield rose 7 basis points to 4.31%. The benchmark 10-year note yield rose 1 bp to 2.92%.

Sumitomo's three tranches

Sumitomo Mitsui Banking sold $2 billion of notes (Aa2/A+) in three parts, a source close to the trade said.

There was substantial demand for the paper with about $6 billion on the books, the source said. About $3 billion of that came from investors in Asia giving "large support," she added.

The $500 million of three-year floating-rate notes priced at par to yield Libor plus 95 bps.

A second part was $400 million of 1.9% three-year notes sold at a spread of Treasuries plus 130 bps. The notes priced at the tight end of guidance in the 135 bps area, plus or minus 5 bps.

The company also priced $1.1 billion of 2.9% five-year notes priced at 150 bps over Treasuries. These notes also were sold at the low end of talk in the 155 bps area, plus or minus 5 bps.

The deal was sold under Rule 144A and Regulation S.

Bookrunners were Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Goldman Sachs & Co.

Sumitomo last sold bonds in a $1.5 billion deal in two tranches on Jan. 6. The 1.95% three-year notes from that offering were priced at 90 bps over Treasuries, and the 3.1% five-year notes sold at 103 bps over Treasuries.

The subsidiary of Sumitomo Mitsui Financial Group is based in Tokyo.

XL Group's sales

XL Group plc is planning both a sale of senior notes and a remarketing of existing paper through two subsidiaries, according to a press release.

XL Group Ltd. plans to sell senior notes due in 2021 that will be guaranteed by XL Group plc.

Up to $72.2 million of the proceeds will be used to fund a tender offer for outstanding series C preference ordinary shares, and any remainder will be used for general corporate purposes, including repurchase or repayment of debt.

Bookrunners for the sale are Morgan Stanley & Co., Inc. and Wells Fargo Securities LLC.

Another subsidiary, XL Co. Switzerland GmbH, is planning a remarketing of $575 million of XL Group Ltd.'s 8.25% senior notes due in August, 2021. The remarketing will commence on Aug. 2 and is anticipated to settle on Aug. 15.

Proceeds from the remarketing are to be used to satisfy the purchase price for XL's ordinary shares to be issued and delivered to holders of equity security units upon settlement of forward purchase contracts.

The insurance and reinsurance company is based in Dublin.

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