Virginia Electric & Power, Danske Bank, Gulf Power sell bonds; new deals mostly trade higher

By Andrea Heisinger

New York, June 23 - New deals were few and far between in the investment-grade bond market Tuesday as a two-day Federal Reserve board meeting got under way.

Virginia Electric & Power Co., Danske Bank and Gulf Power Co. priced offerings early in the day.

The Fed meeting, scheduled to end Wednesday, will likely mean a lull until an announcement is made in the afternoon.

"Everyone got in early today," a market source said. "It's not exciting."

A couple of new deals are expected Wednesday, but then the primary will be mostly empty, syndicate sources said.

The secondary market was seeing similar effects, although the market did see some trading of Monday's new issues, including the four tranches from Merck & Co.

The new Virginia Electric & Power bond did not fare as well and barely moved once it hit the secondary market.

Spreads remained generally wider as Treasury yields tightened for the second day in a row. The 10-year note was 5 basis points better with a 3.63% yield, a source said, while the 30-year bond was in 7 bps to yield 4.37%.

Virginia Electric offers small deal

Richmond, Va.-based Virginia Electric & Power priced $350 million 5% 10-year senior notes Tuesday at Treasuries plus 137.5 basis points.

Bookrunners were Barclays Capital Inc., Goldman Sachs & Co. and Scotia Capital.

Proceeds will be used by the electric company for general corporate purposes, including repayment of short-term debt and commercial paper.

Danske Bank offers $5 billion

Danske Bank sold $5 billion of notes in two tranches early Tuesday with the backing of the Kingdom of Denmark, an informed source said.

The deal was done via Rule 144A.

A $2.25 billion tranche of 2.5% three-year notes priced to yield Treasuries plus 78.2 bps, while a $2.75 billion tranche of three-year floaters priced at par to yield three-month Libor plus 35 bps.

Banc of America Securities LLC, Danske, Goldman Sachs and J.P. Morgan Securities Inc. were the bookrunners.

Long slowdown possible

It could have been the Fed meeting that led to the lack of deals in Tuesday's primary market. Or, as a market source suggested, it could be that a summer slowdown has fully hit the market and will likely continue for several weeks.

"We're not expecting much this week," the source said. He added that although Tuesday was slower than Monday, it's likely a trend that will continue.

"We knew it would be heavy at the beginning [of the week]," he said. "The beginning of the weeks will be busy and then it will slow down."

Many issuers are "going into Q2," he said, although it doesn't necessarily mean there will be earnings blackouts.

Monday may have held much of the week's issuance, but there are still a couple of deals lurking. One syndicate desk's calendar has one possible deal for Wednesday, depending on how the market looks at the open, a source said.

Another source said they will likely have something as well.

"It's not anything big," he said.

Gulf Power adds to floater

Gulf Power added $15 million to its new issue of one-year senior floating-rate notes on Tuesday, according to an FWP filing with the Securities and Exchange Commission.

The notes priced at par to yield three-month Libor plus 10 basis points.

Total issuance is $140 million, including $125 million priced Monday.

Morgan Stanley & Co. Inc. was the bookrunner.

Proceeds are going to repay a portion of short-term debt and for general corporate purposes, including the company's continuous construction program.

The electric subsidiary of the Southern Co. is based in Pensacola, Fla.

Merck bonds mostly improve

Early Tuesday morning the four tranches of Merck bonds were uniformly improved in trading, a secondary source said, following only a slight tightening on Monday after they priced and barely made it to the secondary.

By late afternoon, two of the tranches had continued gains while the other two had lost steam from earlier in the day, a trader said.

The 1.875% due 2011 was in about 10 bps to 66 bps bid, 63 bps offered in the morning. The issue priced at Treasuries plus 75 bps and by late afternoon had tightened further to 63 bps bid, 58 bps offered.

A tranche of 4% bonds due 2015 priced at 137.5 bps and were 10 to 15 bps better in the morning at 126 bps bid, 121 bps offered. By afternoon they had bettered that to 120 bps bid, 115 bps offered.

The 5% bond due 2019 came in to 130 bps bid, 125 bps offered in the morning from its 145 bps price over Treasuries. By afternoon, the bond had slipped back to 137 bps bid, 132 bps offered.

Rounding out the slight improvements was the 5.85% bond due 2039, which priced at 145 bps over Treasuries and was trading at 133 bps bid, 128 bps offered in the morning. By afternoon it had widened to 137 bps bid, 132 bps offered, the trader said. This bond was seen unchanged right after pricing Monday.

Virginia Electric bond unchanged

The new 5% bond due 2019 from Virginia Electric & Power was mostly unchanged once it was freed for trading, a secondary source said.

It priced at Treasuries plus 137.5 bps and was trading at 138 bps bid, 133 bps offered.

Telefonica bonds better

Two tranches of bonds priced Monday by Spain's Telefonica Emisiones, S.A.U. were improved from the previous day's venture into the secondary, a trader said late Tuesday.

The 4.949% bond due 2015 priced at Treasuries plus 225 bps and was quoted at 206 bps bid, 202 bps offered, he said.

The 5.877% due 2019 was improved from its previous trading level. The bond priced at Treasuries plus 220 bps and was quoted Tuesday at 205 bps bid, 202 bps offered. This was better than the 222 bps bid at which it was quoted soon after selling.

Financial sector unfocused

A trader in the financial side of the high-grade secondary said there was little action in his sector late Tuesday.

He called it "not very focused at all really."

The culprit of the lull may have been the Fed meeting, he said, although he couldn't say that for sure.

GE Capital tops trading

An older bond from General Electric Capital Corp. was the most popular with investors early Tuesday afternoon.

The company's 5.625% bond due 2018 was trading heavily. It is not backed by the Federal Deposit Insurance Corp.

This move comes a day after a memo to staff from General Electric chief executive officer Jeff Immelt, which said that the company would oppose government efforts that would force the splitting off of its GE Capital branch, according to a Reuters story.

A 7.625% bond due 2019 from Bank of America Corp. followed GE Capital's. The heavy trading came after the bank priced common shares that were being exchanged for preferred shares.

Bank, broker CDS worsen

Credit default swaps for bank and brokerage names were about 2 to 5 bps wider across the board, a trader said late in the day.

On Monday, they were each 3 to 10 bps wider, he said.

ArcelorMittal, Merrill Lynch bonds shift

Two bonds with the biggest movements from a week ago came from steel maker ArcelorMittal and an old one from Merrill Lynch & Co., a source said.

The ArcelorMittal 5.375% bond due 2013 reversed its fortune from Monday when it was more than 62 bps wider than the previous week. By late Tuesday it was nearly 60 bps better than a week ago.

This move, along with a general rise in the steel sector, comes after word from the company that although demand for steel isn't expected to improve for a couple of years, things will likely not get worse.

Merrill Lynch saw its 5.45% bond due 2014 widen more than 40 bps.

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