Avon Products, PepsiCo, Nevada Power sells bonds as tone roughens; Noble gains, banks rally

By Andrea Heisinger and Paul Deckelman

New York, Feb. 25 - A variety of non-financial issuers sold bonds Wednesday, including Avon Products, Inc., PepsiCo, Inc. and Nevada Power Co. d/b/a NV Energy.

Most of the day's deals priced at or near the amount they launched at, and came in line with price guidance.

The Nevada Power and Avon sales went smoothly, with the PepsiCo offering taking much of the day to price.

In the secondary sphere on Wednesday, a market source said the widely followed CDX Series 11 North American high-grade index was unchanged on the day at a mid bid-asked spread level of 215 basis points.

Advancing issues remained behind decliners, by a three-to-two ratio.

Overall market activity, reflected in dollar volumes, fell nearly 11% from the levels seen on Tuesday.

Spreads in general tightened Wednesday as Treasury yields rose markedly; for instance, the yield on the benchmark 10-year issue ballooned out by 13 bps to 2.92%.

The new Nevada power bonds were trading around in the secondary, but the new PepsiCo and Avon Products deals came too late in the session for any meaningful aftermarket activity.

Also in the secondary, Noble Energy Inc.'s mega-deal, which priced Tuesday, was seen having firmed smartly in Wednesday's dealings.

Bank paper was mostly better on the day, in line with a late equity rally in the sector, but quasi-bank GE Capital Corp. continues to struggle.

Avon upsizes deal

Avon Products increased the size of its two-tranche bond offering by $100 million, a source close to the deal said.

It priced $850 million in five- and 10-year notes, up from the originally planned $750 million.

The $500 million of 5.625% five-year notes priced at 99.455 to yield 5.752% with a spread of Treasuries plus 375 bps.

The $350 million of 6.5% 10-year notes priced at 98.746 to yield 6.674% with a spread of Treasuries plus 375 bps.

Both tranches priced in line with talk, which the source said was in the "mid-to-high 300s."

The deal was "several times" oversubscribed, he said, estimating the books at 2.5 times the offering amount.

It was a "pretty boring deal," the source said, adding that it was announced, then priced without much drama.

"There was nothing weird about this one," he said.

J.P. Morgan Securities Inc., Deutsche Bank Securities Inc. and Morgan Stanley & Co. Inc. ran the books.

Nevada Power sells $500 million

Nevada Power d/b/a NV Energy sold $500 million of 7.125% 10-year mortgage bonds at 99.917 to yield 7.136% with a spread of Treasuries plus 425 bps.

The pricing was in line with talk of the 425 bps area, plus or minus 5 bps, a source close to the deal said.

There was "decent" interest on the deal from high-yield accounts, he said, adding that there has been on BBB rated deals lately. Nevada Power's mortgage bonds were rated Baa3 by Moody's Investors Service, BBB by Standard & Poor's and BBB- by Fitch Ratings.

He estimated between 30 and 50 junk accounts took part in the sale.

The company, a subsidiary of NV Energy Inc., is using the proceeds to repay debt under a revolving credit facility.

J.P. Morgan Securities Inc., RBS Greenwich Capital and Wachovia Capital Markets ran the books.

PepsiCo offers 5-year notes

Beverage, snack and food company PepsiCo sold an upsized $1 billion of 3.75% five-year senior notes at 99.788 to yield 3.797% with a spread of Treasuries plus 180 bps.

The deal was originally sized at $750 million.

The notes came in at the tight end of price talk of 180 to 185 bps, a source said. They priced about 20 bps cheaper than the company's comparable existing bonds.

Morgan Stanley, Siebert Capital Markets and UBS Investment Bank were bookrunners.

Issuers price amid rough tone

High-grade issuers kept coming Wednesday, despite a less-than-ideal market tone.

A source said that although the deal he worked on was dull it was "definitely not boring out there."

"Things got done, but they were mostly higher rated," he said.

Both the Avon and PepsiCo deals were A rated, while Nevada Power was at the other end of the spectrum, with its BBB rating.

There was neither a severe boost nor decline from president Barack Obama's economic speech to Congress Tuesday night, the source said.

"It's pretty hard to tell in the primary," he said. "If it's that bad out, [companies] probably aren't issuing."

There may be a couple more issues for the week, but likely nothing major, the source said.

"I think most calendars are pretty bare," he said. "We already had a lot at the beginning [of the week]."

Nevada Power trades near issue

When the new Nevada Power 7.125% notes due 2019 were freed for secondary dealings, a trader saw those bonds offered at 418 bps, with no bid seen; the company had priced the $500 million of bonds earlier at a spread over comparable Treasuries of 425 bps.

A trader said that the Avon Products and PepsiCo deals came to market too late in the day for secondary activity.

Noble posts notable gain

Noble Energy's new 8¼% notes due 2019 were observed trading at 518 bps bid, 510 bps offered. That was a substantial tightening from the 550 bps over level at which the Houston-based energy exploration and production company priced its $1 billion of bonds on Tuesday.

Woodside Pete comes in

Also in the energy arena, Woodside Finance Ltd.'s new 8 1/8% notes due 2014 were heard offered at 600 bps, although no bid level was seen; the company, an arm of Australia's Woodside Petroleum, priced $400 million of the bonds at 625 bps over on Tuesday.

The other half of that two-part deal - the $600 million of 8¾% notes due 2019 - showed less strength, firming only a little to 606 bps bid, 604 bps offered from the 612.5 bps level at which they priced, also on Tuesday.

University's bonds firm smartly

Vanderbilt University's $250 million of new 5¼% notes due 2019, which the Nashville-based educational institution pieced on Tuesday, were seen trading Wednesday offered at 235 bps over, versus the 250 bps spread at their pricing.

ConocoPhillips widens out

Among established issues, ConocoPhillips Co.'s 5.75% notes due 2019 were quoted having widened some 19 bps on the day to 294 bps; that puts the Houston-based energy company's bonds almost right back where they started, the 295 bps spread at which it priced the $750 million of bonds back on Jan. 29, as part of a two-part deal worth $1.5 billion.

Bank paper bounces back

Among the financial issues - whose shares bounced around all day before finally rallying late in the day on government expressions of help for the banking industry, and disavowals of any intention of nationalizing the banks - a trader said that Bank of America Corp. paper was "better - there was a kind of ebb and flow, but it's kind of ending the day stronger."

He said that he was "not seeing much in the way of Citi," which was also heard to have tightened.

"There was actually pretty good two-way flow across the board," he said, but "particularly in Bank of America."

A market source at another desk saw B of A's 5.375% notes due 2011 having tightened as much as 55 bps on the session to around the 900 bps level.

Its 2.1% FDIC-backed notes due 2012 firmed by a more sedate 7 bps to 73 bid

A market source saw wild gyrations in Citi's 4.125% notes due 2010, which had traded at a dollar price of 91.5 on Tuesday for a 13%-plus yield and a spread of nearly 1,300 bps; on Wednesday, those bonds got as good as a 97-plus dollar price, which nearly halved the yield and more than halved the spread down to the low 600s. However, late in the day, the bonds gave up those dramatic gains and fell back to around the levels at which they had finished on Tuesday. Over $30 million of the bonds traded.

One of the most active issues was J.P. Morgan Chase & Co.'s 2.625% notes due 2010, with over $85 million traded; spreads on the FDIC-backed issue tightened to under 40 bps.

GE Capital lags behind

While most of the financials were stronger, the trader said that "GE Capital was on its lows." He saw the Fairfield, Conn.-based company's 5.625% notes due 2017 trading at 500 bps bid, 475 bps offered, versus 470 bps bid, 465 bps earlier.

CDS measures tighten up

A trader who watches the credit-default swaps market said the cost of insuring holders of big-bank paper against a possible default was anywhere from 25 bps to 40 bps tighter on the day; he saw Citi's CDS costs tighten by 40 bps to 405 bps bid, 425 bps offered, while B of A was in by 25 bps at 235 bps bid, 250 bps offered.

He saw brokers' bonds debt-protection costs unchanged to 15 bps tighter, with Morgan Stanley 15 bps tighter, and Merrill Lynch's CDS cost unchanged on the day.

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