Measured start to week as Deere, American Honda, utilities price; secondary sees 'weaker tone'

By Aleesia Forni and Andrea Heisinger

New York, Oct. 9 - A short week got off to a solid start in the investment-grade market on Tuesday with a smattering of mostly smaller deals.

John Deere Capital Corp. priced $1 billion of bonds in two tranches. The sale included $500 million of two-year floating-rate notes and $500 million of seven-year notes, both of which sold at the tight end of guidance.

Alabama Power Co. sold $400 million of three-year senior notes, while NStar Electric Co. priced $400 million of 10-year debentures.

London-based Reed Elsevier Capital Inc. was in the market with a $250 million trade of guaranteed 10-year notes that priced at the low end of talk.

American Honda Finance Corp. did a quick $400 million sale of floaters due 2014. The deal size was increased from $250 million.

A $500 million Yankee bond due 2018 came from Nestle Holdings Inc.

And Western Gas Partners, LP reopened its split-rated issue of 4% notes due in July of 2022 to add $150 million.

An upsized $500 million offering of perpetual preferred stock was priced by Discover Financial Services. The deal was initially announced at a size of $250 million.

While there was no shortage of new bonds, the tone was a little soft at the open on some economic news out of Europe and some corporate earnings results.

"It was OK, actually," a syndicate source commented on the tone at the top of the day.

"It was down earlier and is not too great now [after the close]."

Most of the day's deals "printed [at a spread] 10 to 20 bps tighter" than where they were talked, the source said.

"It didn't really affect us that much."

Corporate earnings will be ongoing, meaning that some issuers could "pop into the market" after their announcements, a market source said.

There is about $15 billion of new bonds expected to price during the short week, with about $2.6 billion already accounted for.

"It was kind of a slow start to the week, but I hear of a couple of things for tomorrow," the market source said.

The secondary market experienced a "weaker tone overall, but not a lot of activity" on Tuesday, according to one trader.

Another trader said that "blackout periods ahead of earnings may keep new issues from heating up."

Still, NStar Electric and John Deere Capital saw their new fixed-rate notes close the session 4 bps tighter and 6 bps tighter respectively.

Investment-grade bank and brokerage credit default swaps costs rose on Tuesday.

Bank of America's CDS costs widened 12 bps to 156 bps bid, 163 bps offered. Citi's CDS costs were 5 bps wider at 155 bps bid, 165 bps offered. J.P. Morgan's CDS costs rose 6 bps to 118 bps bid, 123 bps offered. Wells Fargo's CDS costs widened 6 bps to 85 bps bid, 90 bps offered.

Merrill Lynch's CDS costs were 5 bps wider at 155 bps bid, 165 bps offered. Morgan Stanley's CDS costs widened 12 bps to 228 bps bid, 235 bps offered. Goldman Sachs' CDS costs rose 10 bps to 176 bps bid, 183 bps offered.

Deere sells $1 billion

John Deere Capital priced $1 billion of notes (A2/A/) in two maturities, an informed source said.

The $500 million of two-year floating-rate medium-term notes sold at par to yield Libor plus 10 bps. The coupon was at the low end of guidance in the Libor plus 15 bps area.

A second tranche was $500 million of 1.7% senior notes due 2020 priced at a spread of Treasuries plus 65 bps. The notes were sold at the tight end of guidance in the 75 bps area.

The seven-year notes were quoted at 59 bps bid, 57 bps offered near the day's close.

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

John Deere Capital was last in the market with a $1 billion two-tranche sale on Sept. 4.

The funding arm of agriculture and industrial equipment maker Deere & Co. is based in Moline, Ill.

American Honda upsizes

American Honda Finance priced an upsized $400 million of floating-rate notes due 2014 at par to yield Libor plus 12.5 bps, a market source said.

The notes (A1/A+/) were sold in line with talk in the Libor plus 12.5 bps area. The deal size was increased from $250 million.

Barclays, Goldman Sachs & Co. and Williams Capital Group LP were bookrunners.

The sale was done under Rule 144A and Regulation S.

The U.S. arm of Honda Financial Services is based in Torrance, Calif.

NStar's $400 million

NStar Electric sold $400 million of 2.375% 10-year debentures (A2/A-/A+) at a spread of Treasuries plus 70 bps, an informed source said.

A trader saw the notes at 66 bps bid, 63 bps offered near the end of the session.

The bonds priced tighter than whispered guidance in the range of 75 bps to 80 bps, the source said.

There was about $1.3 billion of demand for the deal that had a do-not-grow provision on it.

Bookrunners were Goldman Sachs & Co., Mitsubishi UFJ Securities (USA) Inc. and Wells Fargo Securities LLC.

Proceeds will be used to repay $400 million of 4.875% notes due on Oct. 15, which were originally issued by Boston Edison Co.

NStar was last in the market with a $300 million sale of 30-year bonds on March 11, 2010.

The electric subsidiary of Northeast Utilities is based in Boston.

Reed Elsevier prices tight

Reed Elsevier Capital priced $250 million of 3.125% 10-year guaranteed notes to yield a spread of Treasuries plus 150 bps, a market source said.

The notes (Baa1/BBB+/A-) were sold tighter than initial talk in the 162.5 bps area and at the tight end of revised guidance in the 155 bps area.

The sale was done under Rule 144A and Regulation S.

Bank of America Merrill Lynch, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC were bookrunners.

The deal is guaranteed by Reed Elsevier plc and Reed Elsevier NV.

Reed Elsevier Capital Corp. last tapped the U.S. bond market with a $1.5 billion offering of notes in two parts on Jan. 13, 2009. An 8.625% 10-year note from that trade was priced at 637.5 bps over Treasuries.

The publisher and information provider is based in London.

Alabama Power three-years

Alabama Power priced $400 million of 0.55% three-year senior notes, series 2012B, to yield Treasuries plus 25 bps, an informed source said.

The notes (A2/A/A+) were talked in the range of 40 bps to 45 bps over Treasuries and sold much tighter than that level.

Morgan Stanley & Co. LLC and RBS Securities Inc. were bookrunners.

Proceeds are being used for the redemption of $200 million of 6% senior insured monthly notes due Oct. 15, 2037 and for general corporate purposes.

The electric subsidiary of the Southern Co. is based in Birmingham.

Western Gas' reopening

Western Gas Partners reopened its 4% senior notes due July 1, 2022 on Tuesday to add $150 million, a market source said.

The notes (Baa3/BB+/BBB-) were priced at a spread of Treasuries plus 165 bps.

Total issuance will be $670 million including $520 million sold on June 21.

RBS Securities Inc. was the active bookrunner.

Proceeds are being used for general partnership purposes.

The midstream energy asset company is based in The Woodlands, Texas.

Nestle's $500 million

Nestle Holdings sold $500 million of 1.25% notes due 2018 (Aa2/AA/) to yield mid-swaps plus 43 bps or Treasuries plus 61.5 bps, a market source said.

The sale is guaranteed by parent company Nestle SA.

Credit Suisse Securities (USA) LLC, Goldman Sachs International, Mitsubishi UFJ Securities (USA) Inc. and UBS Securities LLC were bookrunners.

Nestle Holdings was last in the market with a $900 million sale of five-year notes on June 14.

The unit of Swiss food, beverage and pet care company Nestle SA is based in Wilmington, Del.

Discover's preferreds

Discover Financial Services priced $500 million of 6.5% series B noncumulative perpetual preferreds, according to an FWP filed with the Securities and Exchange Commission.

The preferreds will be issued as depositary shares representing a 1/40th interest.

The deal came in line with revised talk and was upsized from $250 million.

A trader said the issue had been trading around $24.90 in the gray market as of midday.

Post-pricing, another trader saw the issue around $25.05. A third source pegged the paper at $25.06 bid.

"There was a lot of focus on Discover," the third source said. "It's done quite well."

The source noted that it was unusual for a new issue to be trading at such high levels, especially in the gray market.

"Nobody was expecting it to do well," he remarked, quipping, "Who even has a Discover card?"

Still, he agreed that the higher coupon could be enticing buyers, as well as the fact that it was "a new name in this market."

"It's a small deal and a name retail buyers know," another trader noted.

Discover Financial has applied to list the new series of preferreds on the New York Stock Exchange under the ticker symbol "DFSPB."

Joint bookrunners were Bank of America Merrill Lynch, Citigroup Global Markets Inc., JPMorgan Securities LLC, UBS Securities LLC and Wells Fargo Securities LLC.

Proceeds will be used for general corporate purposes, which may include advances to subsidiaries to finance their activities, repayment of outstanding indebtedness and repurchases and redemptions of issued and outstanding securities of Discover Financial Services and its subsidiaries.

Discover Financial is a Riverwoods, Ill.-based direct banking and payment services company.

Stephanie N. Rotondo contributed to this review

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