High-grade bond trading muted; Realty Income, Puget Sound Energy each sell $250 million

By Sheri Kasprzak

New York, June 24 - A lighter, summery feeling has hit investment grade's primary market, said insiders reached Thursday.

"It's definitely quiet," said one sellside source reached during the afternoon. "There's stuff out there, and there's certainly more coming, but it has tapered off a lot, even from a month ago."

Thursday's primary action was fairly light, led by a $250 million sale of notes from Realty Income Corp.

The 5.75% notes (A3/A-/A-) due Jan. 15, 2021 were priced to yield 5.826%, or Treasuries plus 270 basis points, said a sellside source connected to the deal.

The notes have a make-whole call at Treasuries plus 40 bps.

Citigroup Global Markets Inc., Bank of America Merrill Lynch and Wells Fargo Securities Inc. were the bookrunners for the offering.

The corporation plans to use the proceeds from the offering to acquire $269 million in winery and vineyard properties under long-term, triple-net lease agreements from Diageo Chateau & Estates Wines. The properties to be acquired are located in Napa Valley.

Based in Escondido, Calif., Realty Income is a real estate investment trust that provides monthly income opportunities to its shareholders by way of long-term lease agreements.

Market tone weakens

The high-grade market tone was weaker on Thursday, sources said.

The CDX Series 14 North American investment-grade index eased 5 bps to a mid bid-asked spread of 120 bps, according to a source.

Overall investment-grade Trace volume dropped 18% to $10 billion, a source said.

In secondary trading, Puget Sound Energy's first mortgage bonds that priced on Thursday firmed late in the day, traders said.

Debt from Goldman Sachs Group Inc. and Bank of America Corp. moved out in trading, a source said.

Yields eased on Thursday after the Treasury Department sold seven-year notes at the lowest yield in more than a year.

The auction of the seven-year notes went "well," one source said.

The Treasury Department sold $30 billion of the seven-year notes at a yield of 2.575%, the lowest yield since March 2009.

Yields on the benchmark 10-year Treasury note eased 2 bps to 3.14%. Two-year yields eased 1 bp to 0.65%. And yields on 30-year bonds ended at 4.10% from 4.06% the previous day.

Puget Sound powers deal

Also on Thursday, Puget Sound Energy, Inc. sold $250 million in senior notes, according to a pricing sheet.

The 5.764% 30-year notes (Baa1/A-/) were priced at par with a spread of Treasuries plus 167.5 bps.

RBS Securities Inc., Mitsubishi UFJ Securities (USA) Inc. and BNY Mellon Capital Markets LLC were the joint bookrunners.

Proceeds will be used for general corporate purposes.

Based in Bellevue, Wash., Puget Sound Energy is an electric and natural gas utility.

Entertainment Properties ahead

Looking to upcoming sales, Entertainment Properties Trust is expected to price $250 million in senior unsecured notes, according to a statement released by the company Thursday.

The 10-year split-rated notes will be offered to institutional buyers under Rule 144A.

In addition to the note sale, the company expects to close a new $320 million unsecured revolving credit facility.

Proceeds from the sale will be used to repay the entire outstanding balance of the company's existing secured revolving credit facility, to repay in full its existing term loan credit facility, to repay in full its Toronto Dundas Square credit facility and to pay fees and expenses related to the early repayment of those facilities.

Based in Kansas City, Mo., Entertainment Properties acquires movie theater complexes and other entertainment facilities.

Puget Sound Energy tighter

Puget Sound Energy's 5.76% first mortgage bonds due 2040, which priced on Thursday at Treasuries plus 167.5 bps, tightened in late afternoon secondary trading, sources said.

"Saw 165 bid on the Puget's, but that was all," one trader said.

Near the market close, another trader saw the notes at 175 bps bid, 155 bps offered.

Goldman, Bank of America wider

Goldman Sachs' notes moved out again in secondary trading on Thursday, according to a source.

The New York-based investment bank's 7.5% notes due 2019 (A1/A) widened to 282 bps from 267 bps on Wednesday.

Also, Goldman's 6.15% notes due 2018 (A1/A) traded at 301 bps over Treasuries versus 290 bps the previous day.

Elsewhere in the financial sector, Charlotte, N.C.-based Bank of America's 7.625% notes due 2019 (A2/A) were 10 bps wider at 260 bps, the source said.

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