Upbeat tone leads SunTrust, KeyCorp, Quest, Daimler to primary; AT&T, telecom bonds widen

By Andrea Heisinger and Cristal Cody

New York, March 21 - SunTrust Banks, Inc., KeyCorp, Quest Diagnostics, Inc., Associated Banc-Corp, Daimler Finance North America, Entergy Louisiana, LLC, Telephone and Data Systems, Inc. and Swedbank AB were all part of a backlog of bond sellers in the high-grade market Monday taking advantage of a better tone.

Three of the issuers were tapping the market to raise capital in order to repay Troubled Asset Relief Program Capital Purchase Program funds borrowed from the U.S. Treasury.

SunTrust Banks was one of those. The financial sold $1 billion of five-year notes at the tight end of guidance. The sale had been announced on Friday along with KeyCorp's.

That $1 billion sale of 10-year notes from KeyCorp priced at about the same time as SunTrust's.

A smaller sale came from Associated Banc-Corp, in order to repurchase a portion of TARP preferreds. Associated sold $300 million of five-year notes.

Daimler Finance North America sold $1.9 billion of notes in three parts by late afternoon under Rule 144A. The sale is guaranteed by parent company Daimler AG.

While Daimler had the largest sale of the day, Quest Diagnostics came close with its $1.25 billion deal in four parts.

The sale includes a floating-rate tranche of three-year notes, and fixed-rate tranches with five-, 10- and 30-year maturities.

Entergy Louisiana, a utility subsidiary of Entergy Corp., priced $200 million of 10-year first mortgage bonds in a quick sale.

Another smaller offering came from telecommunications company Telephone and Data Systems. The issuer upsized its sale of notes due 2060 to $300 million from $100 million.

A sale of covered bonds was done late in the day by Swedbank Mortgage. The $2 billion of bonds were sold in two tranches - one with a three-year floating-rate coupon and another with a five-year fixed rate. They were priced under Rule 144A.

The new deals that KeyCorp, SunTrust, Quest Diagnostics and Entergy Louisiana traded stronger in the secondary market, sources said.

The bonds from Daimler Finance North America were not immediately seen in secondary trading, sources said.

Telecommunications bonds widened in trading on the news that Dallas-based AT&T Inc. would buy T-Mobile USA from Deutsche Telekom AG for $39 billion in cash and stock.

Deutsche-Telekom's bonds were tighter early afternoon, but other bonds in the sector widened 2 bps to 15 bps in trading, according to traders.

AT&T's bonds widened 10 bps to 15 bps and bonds from Verizon Communications Inc. and Sprint Nextel Corp. traded 4 bps to 5 bps wider, sources said.

Also weaker on the day was the Markit CDX Series 15 North American investment-grade index. The index eased 9 bps to a spread of 96 bps, according to Markit Group Ltd.

Other bond sectors traded flat, traders said.

Oil and gas bonds were unchanged to 2 bps wider, while bank and financial paper was flat to "maybe 1 to 2 basis points better - if anything," a trader said.

Overall investment-grade Trace volume rose 3% to just over $10 billion, a market source said.

Treasuries fell, sending yields up as stocks made a comeback. The 10-year Treasury note yield increased 5 bps to 3.32%, and the 30-year bond yield rose 4 bps to 4.45%.

Trading volume was average to below average on the day, sources said. The Japanese markets were closed for a holiday.

Bonds also were pressured by the Treasury Department's announcement that it will begin to sell its $142 billion portfolio of mortgage-backed securities.

Tone brightens

After two weeks of uncertainty and hesitation about selling bonds in the high-grade market, a backlog of deals started to come out on Monday.

One source said that the week "will definitely be busier than last week." Tensions in the Middle East coupled with the nuclear and natural disaster crises in Japan had left the market light on volume in recent sessions.

"There was a better tone [today]," a source said. "Issuers are definitely taking advantage of the market since they weren't able to issue."

There is still a "jumbo trade" set to come out, a source said.

Syndicate desk sources reported a handful of new bonds for Tuesday with more set to come out on Wednesday.

Three banks to repay TARP

Atlanta-based financial services company SunTrust Banks sold $1 billion of 3.6% five-year senior notes (Baa2/BBB/BBB+) at Treasuries plus 160 bps, a market source said at mid-afternoon.

The offering was talked in the 165 bps area plus or minus 5 bps, a source said, and priced at the tight end of that.

Barclays Capital Inc. and SunTrust Robinson Humphrey Inc. were bookrunners.

The bank raised 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 Troubled Asset Relief Program's Capital Purchase Program.

Meanwhile, Cleveland-based KeyCorp priced $1 billion of 5.1% 10-year senior medium-term notes, series I (Baa1/BBB+/A-) at Treasuries plus 180 bps, according to a source away from the sale.

J.P. Morgan Securities LLC, Morgan Stanley & Co., Inc. and KeyBanc Capital Markets Inc. ran the books.

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

The third offering came from Associated Banc-Corp late in the day. The bank holding company sold $300 million of 5.125% five-year senior notes (Baa1/ BBB-) at a spread of 320 bps over Treasuries, a market source away from the trade said late in the day.

Bookrunners were J.P. Morgan Securities LLC and Deutsche Bank Securities Inc.

Proceeds are being used to repurchase a portion of $525 million cumulative preferred stock from the U.S. Treasury on April 6. The preferreds were sold as part of the Troubled Asset Relief Program's Capital Purchase Program. The company plans to repurchase $262.5 million liquidation amount plus $1.8 million in accrued and unpaid dividends.

The unit of Associated Bank is based in Green Bay, Wis.

SunTrust, Key up in trading

In secondary trading, the bonds from SunTrust and KeyCorp firmed, sources said.

SunTrust's notes due 2016 tightened to 155 bps bid, 152 bps offered, a trader said. The notes were seen slightly tighter late in the day at 154 bps bid, 150 bps offered, another trader said.

KeyCorp's notes due 2021 were seen trading tighter at 173 bps bid, 180 bps offered.

Another trader saw the notes at 174 bps bid, 172 bps offered.

Daimler unit's $1.9 billion

Daimler Finance North America sold $1.9 billion of notes (A3/BBB+/BBB+) in three tranches by late afternoon, said a source who worked on the trade.

There was about $2.8 billion in total on the books, the source said. Investors were skewed more towards the three-year floaters and five-year fixed-rate notes.

The first part was $750 million of three-year floating-rate notes priced at par to yield three-month Libor plus 61 bps.

The $450 million of 1.95% three-year notes sold at a spread of Treasuries plus 85 bps. The notes priced in line with guidance in the 85 bps area.

A final part was $700 million of 3% five-year notes priced at Treasuries plus 100 bps. These notes also priced in line with talk in the 100 bps area.

Bookrunners were Barclays Capital Inc., Citigroup Global Markets Inc. and HSBC Securities (USA) Inc.

Proceeds are being used for general corporate purposes and the sale is guaranteed by Daimler AG.

The subsidiary of automaker Daimler is based in Stuttgart, Germany.

Quest sells four tranches

Quest Diagnostics sold $1.25 billion of senior notes (Baa2/BBB+/BBB+) in two parts on Monday, making it the second largest sale of the day, a source away from the deal said.

The $200 million of three-year floating-rate notes priced at par to yield three-month Libor plus 85 basis points. They are non-callable.

A second $300 million tranche of 3.2% five-year notes sold at 99.907 to yield 3.22% with a spread of Treasuries plus 120 bps. They have a make-whole redemption at 20 bps over Treasuries.

The third part was $500 million of 4.7% 10-year notes that priced at 99.833 to yield 4.721% with a spread of 140 bps over Treasuries. The tranche is callable at a make-whole of 25 bps over Treasuries.

The longest bond was $200 million of 5.75% 30-years that priced at 97.263 to yield 5.949% with a spread of Treasuries plus 150 bps. The notes also have a make-whole call at 25 bps over Treasuries.

Morgan Stanley & Co., Inc., Goldman Sachs & Co., RBS Securities Inc., J.P. Morgan Securities LLC and Wells Fargo Securities LLC were bookrunners.

Proceeds are going toward $750 million to fund the purchase price and related transaction costs of the acquisition of Athena Diagnostics. Another $490 million and $85 million cash at hand will be used to repay outstanding debt under a senior revolving credit facility and secured receivables credit facility.

The sale is guaranteed by certain domestic subsidiaries.

Quest Diagnostics' bonds were stronger in secondary trading, sources said.

The company's notes due 2016 firmed to 114 bps bid, 111 bps offered.

The notes due 2021 also tightened to 133 bps bid, 130 bps offered.

The tranche of bonds due 2040 firmed slightly to 149 bps bid, a trader said.

The diagnostic testing company is based in Madison, N.J.

Entergy unit's mortgage bonds

Entergy Louisiana sold $200 million of 4.8% 10-year first mortgage bonds (A3/A-) at 150 bps over Treasuries, according to an FWP filing with the Securities and Exchange Commission.

Bookrunners were Barclays Capital Inc., BNP Paribas Securities Corp., Mizuho Securities USA Inc. and Mitsubishi UFJ Securities International plc.

Proceeds are being used to purchase Unit 2 or the Acadia Energy Center on or about March 31 for $300 million.

In the secondary market, the notes firmed to 148 bps bid, 144 bps offered, a trader said.

The utility subsidiary of Entergy Corp. is based in Baton Rouge, Louisiana.

Telephone and Data upsizes

Telephone and Data Systems priced an upsized $300 million of 7% senior notes due 2060 (Baa2/BBB-/BBB) on Monday at par of $25, a source close to the sale said.

The size was increased from a previously announced $100 million.

Merrill Lynch, Pierce, Fenner & Smith Inc., Citigroup Global Markets Inc., UBS Securities LLC and Wells Fargo Securities LLC were bookrunners.

Proceeds are being used to redeem some or all of $282.5 million outstanding 7.6% series A notes due 2041.

The telecommunications company is based in Chicago.

Swedbank's covered bonds

Swedbank Mortgage AB sold $2 billion of notes (Aaa/AAA) in two parts late on Monday, an informed source said.

The $1 billion of three-year floating-rate notes priced at par to yield three-month Libor plus 45 basis points.

A second part was $1 billion of 2.95% five-year notes priced at 99.917 to yield 2.968% with a spread of Treasuries plus 94.95 bps.

Both notes are non-callable.

The deal was priced under Rule 144A.

Bookrunners were Barclays Capital Inc., Merrill Lynch, Pierce, Fenner & Smith Inc., Deutsche Bank Securities Inc. and HSBC Securities (USA) Inc.

The issuer is a unit of banking group Swedbank AB and is based in Stockholm.

Telecom bonds widen

Bonds in the telecommunications sector widened in trading on AT&T's deal news.

"AT&T's bonds are closing about 10 to 15 basis points wider," a trader said.

AT&T's 5.8% notes due 2019 widened to 72 bps bid, 67 bps offered.

"Some of the longer stuff is out a little bit more," the trader said.

The company's 6.55% bonds due 2039 moved out 10 bps from Friday to 170 bps late Monday, a source said.

Other bonds in the sector also widened in trading, sources said.

"Verizon's 5 basis points wider. Sprint bonds were down about 4 [basis] points," a trader said. "There was just a lot of activity across the entire space."

New York City-based Verizon's 6.35% notes due 2019 traded 6 bps weaker at 80 bps on Monday, a source said.

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