Deal pipeline set to flow; SunTrust, KeyCorp to repay TARP; bonds firm after volatile week

By Andrea Heisinger and Cristal Cody

New York, March 18 - The investment-grade primary market saw no new issues on Friday to end a rocky week.

There was about $7.33 billion of new deals for the week as of early Friday, according to Prospect News data.

Meanwhile, SunTrust Banks, Inc. and KeyCorp announced separate offerings of senior notes to repay the U.S. Treasury for preferred stock sold under the Troubled Asset Relief Program's Capital Purchase Program.

Atlanta-based SunTrust is planning to sell $1 billion of senior notes while KeyCorp has not announced a size.

Both are doing concurrent common stock sales to raise additional capital.

New deals await

After two weeks of issuers sitting on their hands, volume in the high-grade primary could crank back up, sources said.

"We could have a jumbo [deal] kicking off the week," one syndicate source said. "I'm not sure if it's going on Monday."

The source predicted about $15 billion of new deals for the March 21 week but only if "the tone continues."

The rally of the Dow as well as positive headlines could reopen the market for deals that have been shut out for the past two weeks, "barring any disaster over the weekend," the source said.

Low rates and an appealing yield level could also urge some names to sell debt.

"We've had a lot of people stay on the sidelines for the last two weeks and are playing catch up," a source said. "Over $20 billion isn't out of the question."

Overall investment-grade Trace volume dropped almost 20% to less than $10 billion, a market source said.

"We had a really busy Monday, Tuesday, Wednesday, then it was real quiet on Thursday and now it's dead," a source said.

Secondary spreads firm

Still, bonds overall firmed on the day in the secondary market, traders said.

"Looks like spreads today were unchanged to a couple tighter," a trader said.

Bank of America Corp.'s new 3.625% notes due 2016, which were sold on Monday, came back in after widening earlier in the week but still remain weaker.

"It's widened out 2 to 3 basis points from the get-go," a trader said.

General Electric Capital Corp.'s 4.625% senior notes due 2021 were a "tad tighter by almost a nickel," a trader said Friday. The Fairfield, Conn.-based financing arm of General Electric Co. sold the bonds on Jan. 4 at 99.62.

"Everything widened out a little bit when Treasuries were off to the races, but it's calmed down and tightening in a little bit," a source said.

The Markit CDX Series 15 North American investment-grade index also firmed a second day. On Friday, the index tightened 3 bps at a spread of 87 bps, according to Markit Group Ltd.

Treasuries were mixed ending the week with bonds trading in different ranges all over the curve. The 10-year note yield rose 2 bps to 3.27%. Then the 30-year bond yield dropped 2 bps to 4.41%.

SunTrust, KeyCorp eye TARP

SunTrust Banks announced an upcoming $1 billion sale of senior notes to help repurchase preferred stock from the U.S. Treasury, according to a press release.

The bank is raising capital to repurchase $3.5 billion of series C fixed-rate cumulative preferred stock and $1.35 billion of series D cumulative preferred stock. Both were issued under the TARP Capital Purchase Program.

The company is also doing a concurrent $1 billion offering of common stock.

Goldman Sachs & Co., Morgan Stanley & Co. Inc. and SunTrust Robinson Humphrey, Inc. are managing the equity sale and likely the debt offering.

"We are pleased to have the process behind us and believe the outcome of the review strongly validates our deliberate approach to TARP repayment," James M. Wells III, chairman and chief executive officer of SunTrust Banks, said in the release. "Our strong capital base exceeds both current and proposed capital standards."

Wells also said that "SunTrust also looks forward to returning capital to its shareholders at the appropriate time."

The bank and financial services company is based in Atlanta.

KeyCorp also announced a sale of senior notes to help repurchase $2.5 billion of series B fixed-rate cumulative perpetual preferred stock, according to a press release on Friday.

The proceeds from the notes, along with a concurrent offering of $625 million of common stock, are being used to repurchase the 25,000 shares of preferreds issued to the U.S. Treasury as part of the Troubled Asset Relief Capital Purchase Program in late 2008.

Morgan Stanley & Co., Inc. and J.P. Morgan Securities LLC are managing the equity sale and likely the debt sale.

"These actions position Key to grow," said Henry Meyer, KeyCorp chief executive officer, in a news release. "Key has successfully returned to profitability, fortified its capital position, reduced expenses and is benefiting from its early and aggressive actions to reduce our risk profile."

Meyer added that the company's goal has been to be patient in repaying TARP in order to reduce shareholder dilution, and that repayment now is in the best interests of KeyCorp employees, customers and shareholders.

"We believe the U.S. Treasury's investments in Key and hundreds of other banks across the nation contributed to stability and strength of the U.S. banking system during the financial crisis," Meyer said. "We are appreciative of having been a recipient of the TARP investment."

KeyCorp paid a total of about $282 million in dividends to the U.S. Treasury during the investment period, according to Meyer.

The financial services company is based in Cleveland.

Bank of America narrows

The 3.625% five-year notes (A2/A/A+) that Bank of America sold on Monday at a spread of Treasuries plus 172 bps traded Friday at 174 bps bid, 175 bps offered, a trader said.

The notes had widened Wednesday to 185 bps bid, 180 bps offered.

The bank and financial services company is based in Charlotte, N.C.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.