Infrequent issuers General Dynamics, Devon Energy sell bonds; market firmer on quiet trading

By Andrea Heisinger and Cristal Cody

New York, July 5 - The high-grade bond market got a boost in new issue volume on Tuesday as large, multi-tranche deals from General Dynamics Corp. and Devon Energy Corp. priced.

The largest was from Devon Energy, totaling $2.25 billion in three parts with more in the 30-year tranche than the five- and 10-year parts. All three pieces were priced at the tight end of guidance.

General Dynamics sold $1.5 billion of notes in three tranches. All of the notes - due 2015, 2016 and 2021 - were priced at the low end of price talk.

Neither Devon nor General Dynamics have sold bonds since 2009.

There was also a $250 million sale of 10-year notes by McCormick & Co., Inc. That deal had a do-not-grow provision on it, a source said.

There was an overseas name in the market as Svenska Handelsbanken AB sold $1.25 billion of five-year notes.

On the sovereign side, there was a $5 billion offering of three-year notes from the European Investment Bank.

Meanwhile Japan Finance Corp. has a sale planned for Wednesday, a source said. The deal was announced in a Securities and Exchange Commission filing.

Both General Dynamics and McCormick & Co. were largely oversubscribed, a market source said.

"Investors want to play," the source said. "Deals today went well and were oversubscribed so you would think people are going to come again tomorrow."

The primary market seemed to have an upbeat tone, a syndicate source said, despite news that Moody's Investors Service had downgraded Portugal's ratings to junk.

"I think people had waited since last week [to issue] and thought it looked OK this morning," the syndicate source said. "Hopefully tomorrow will be the same."

The Markit CDX Series 15 North American investment-grade index firmed 1 basis point to a spread of 91 bps on Tuesday, according to Markit Group Ltd.

The new bonds from McCormick and Devon Energy were stronger after pricing.

General Dynamics' notes were seen trading in the gray market but priced late in the day and were not immediately seen in the secondary.

"Feels like the holiday continued today," one trader said. "Very quiet."

Overall trading volume stayed below $10 billion, ending the day at about $8.5 billion.

Treasuries rose after the Portugal downgrade, sending yields down across the curve. The 10-year note yield fell to 3.12% from 3.18%. The 30-year bond yield dropped 2 bps to 4.37%.

General Dynamics' huge sale

General Dynamics priced $1.5 billion of bonds (A2/A/A) divided evenly among three maturities by late afternoon, said a source close to the deal.

The sale was announced at a benchmark size, or minimum of $500 million, and the company decided to do $500 million of each tranche, the source said.

It was "well oversubscribed," she said, with "north of $5.75 billion" on the books.

The $500 million of 1.375% notes due 2015 were priced at Treasuries plus 68 bps. They were sold at the tight end of talk in the 70 bps area.

A $500 million tranche of 2.25% five-year notes priced at 60 bps over Treasuries. It priced at the tight of guidance in the 60 to 65 bps range.

The company also priced $500 million of 3.875% 10-year notes at a spread of Treasuries plus 78 bps. The notes priced at the tight end of talk in the 80 bps area.

Bank of America Merrill Lynch, J.P. Morgan Securities LLC, RBS Securities Inc. and Wells Fargo Securities LLC were bookrunners.

Proceeds will be used to repay $750 million of 1.8% notes due on July 15 at maturity and for general corporate purposes.

General Dynamics last priced bonds in a $750 million offering of two-year notes on June 19, 2009.

It was "too early" for trading in the secondary market because the bonds priced late in the day, a trader said.

The company's notes were seen trading in the gray market. The five-year notes were quoted at 60 bps bid, 57 bps offered while the 10-year tranche was quoted at 78 bps bid, 75 bps offered, a trader said.

The aerospace and defense company is based in Falls Church, Virginia.

Devon Energy prices tight

Devon Energy sold $2.25 billion of senior notes (Baa1/BBB+/BBB+) in three tranches late in the day, an informed source said.

The $500 million of 2.4% five-year notes was priced at a spread of 77 bps over Treasuries. That was at the tight end of guidance in the 80 bps area.

A $500 million tranche of 4% 10-year notes sold at Treasuries plus 97 bps. The notes priced at the low end of talk in the 100 bps area.

There was also a $1.25 billion tranche of 5.6% 30-year bonds priced at a spread of Treasuries plus 127 bps. It sold at the tight end of talk in the 130 bps area.

Goldman Sachs & Co., Morgan Stanley & Co., Inc. and UBS Securities LLC were active bookrunners. Passive bookrunners were Barclays Capital Inc., Credit Suisse Securities (USA) LLC, RBC Capital Markets LLC and RBS Securities Inc.

Proceeds will be used to repay $1.75 billion of 6.875% senior notes due 2011 at their maturity in September, and for general corporate purposes.

Devon Energy last priced bonds in a $1.2 billion two-part transaction on Jan. 6, 2009. The 5.625% five-year notes from that trade priced at 400 bps over Treasuries and the 6.875% 10-year notes sold at 385 bps over Treasuries.

In trading, the notes due 2016 firmed to the 74 bps area, one trader said. The notes due 2021 also narrowed, in this case to the 94 bps range.

The bonds due 2041 firmed 2 bps to 125 bps bid, according to another trader.

The natural gas and oil exploration and development company is based in Oklahoma City, Okla.

McCormick sells 10-years

McCormick & Co., Inc. sold $250 million of 3.9% 10-year notes (A2/A-) to yield Treasuries plus 80 bps, according to an FWP filing with the Securities and Exchange Commission.

The deal priced at the low end of guidance in the 85 bps area, plus or minus 5 bps, a source said.

Bookrunners were Bank of America Merrill Lynch, SunTrust Robinson Humphrey Inc. and Wells Fargo Securities LLC.

Proceeds will be used to help fund the previously-announced acquisition of Kamis, SA.

McCormick's new notes firmed in the secondary market, according to traders.

"Saw the bonds offered at 75," one trader said.

Another trader saw the 10-year notes at 76 bps bid, 73 bps offered.

The spice and flavoring company is based in Sparks, Md.

EIB's $5 billion

European Investment Bank priced $5 billion of 1.125% three-year global notes (Aaa/AAA/AAA) to yield 2 bps over mid-swaps, a market source said.

Deutsche Bank Securities Inc., HSBC Securities (USA) Inc. and J.P. Morgan Securities LLC were bookrunners.

The funding arm of the European Union is based in Kirchberg, Luxembourg.

Handelsbanken's five-years

Svenska Handelsbanken AB priced $1.25 billion of 3.125% five-year notes on Tuesday at Treasuries plus 145 basis points, an informed source said.

The notes (Aa2/AA-/AA-) were sold at 99.991 to yield 3.127%. They are non-callable.

Bookrunners were Bank of America Merrill Lynch, Citigroup Global Markets Inc., Goldman Sachs & Co. and Morgan Stanley & Co., Inc.

The financial services company and bank is based in Stockholm, Sweden.

Japan Finance selling notes

Japan Finance is planning a sale of notes (Aa2/AA) that will be guaranteed by Japan, according to a 424B5 filing with the SEC.

A source said that the sale is Wednesday's business - likely pricing early in the day.

Bookrunners are J.P. Morgan Securities LLC, Bank of America Merrill Lynch, BNP Paribas Securities Corp. and Daiwa Capital Markets Europe.

Proceeds will go toward the operation of the Japan Bank for International Cooperation.

The lender to the general public and Japanese businesses is based in Tokyo.

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