British Telecom, British Airways brave volatility with deals; British Telecom, Agilent firm

By Aleesia Forni and Andrea Heisinger

New York, June 25 - British Telecommunications plc and British Airways plc tapped the investment-grade bond market Tuesday as issuance remained measured.

The primary market for high-grade bonds has seen a drought over the past week amid volatility following both a credit squeeze in China and comments from Federal Reserve chairman Ben Bernanke.

British Telecom brought the first deal to the market since June 20, selling $600 million of three-year notes.

It was joined by British Airways, which priced its first sale of pass-through certificates in a transaction totaling $928.6 million from two tranches. The commercial airline sold $721.6 million of class A certificates and $207 million of class B paper.

Investors snapped up the bonds due to the higher yields offered thanks to a spike in Treasury bond yields. Companies have been sticking to shorter maturities, such as British Telecom's three years.

"No one's touching the 30 [year]," a syndicate source said, referring to pricing long bonds.

Not helping the market tone was a disappointing auction of two-year Treasury bonds Tuesday.

The high-grade secondary bond market's tone was more positive on Tuesday, with one source commenting that the session opened "a little better compared to [Monday]."

The Markit CDX North American Investment Grade index was 6 basis points tighter at a spread of 92 bps on Tuesday.

A trader quoted the new British Telecom bonds 3 bps better in the secondary market near the end of the session, while a source at another desk saw the recent deal from Agilent Technologies, Inc. 2 bps better.

In other news, investment-grade bank and brokerage credit default swap costs declined on Tuesday, according to a market source.

Bank of America Corp.'s CDS costs were 8 bps lower at 139 bps bid, 144 bps offered. Citigroup Inc.'s CDS costs declined 5 bps to 135 bps bid, 140 bps offered. JPMorgan Chase & Co. CDS costs declined 2 bps to 100 bps bid, 105 bps offered. Wells Fargo & Co.'s CDS costs were down 1 bp at 77 bps bid, 82 bps offered.

Merrill Lynch's CDS costs declined 4 bps to 128 bps bid, 138 bps offered. Morgan Stanley's CDS costs declined 6 bps to 184 bps bid, 189 bps offered. Goldman Sachs Group, Inc.'s CDS costs were down 3 bps at 173 bps bid, 178 bps offered.

British Telecom prices tight

British Telecommunications was in the market with a $600 million sale of 1.625% three-year senior notes (Baa2/BBB/BBB) priced at Treasuries plus 100 bps, an informed source said.

A trader saw the notes at 97 bps bid near the day's close.

Initial talk was in the Treasuries plus 112.5 bps area, with a benchmark size.

Bookrunners were BNP Paribas Securities Corp., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., HSBC Securities (USA) Inc. and RBS Securities Inc.

Proceeds are being used for general corporate purposes.

The London-based internet and phone services company was last in the U.S. bond market with a $1.25 billion offering in two tranches on June 19, 2012. That sale included a 2% three-year note sold at 162.5 bps over Treasuries.

British Airways' pass-throughs

British Airways tapped the market for $928.6 million of class A and B enhanced equipment trust certificates, a market source said.

The trade includes $721.6 million of 4.625% class A certificates (Baa1/A/A) due 2024 priced at par to yield 4.625%. The average life is 7.9 years.

There is also $207 million of 5.625% class B certificates (Ba1/BBB/BBB-) due 2020 sold at par to yield 5.625%. The average life is 4.1 years.

Bookrunners were Citigroup Global Markets Inc., HSBC Securities (USA) Inc., Deutsche Bank Securities Inc. and Morgan Stanley & Co. LLC.

Proceeds will be used to prefund the purchase of 14 new aircraft to be delivered between June of 2013 and June of 2014.

The subsidiary of International Airlines Group is based in London.

Paul Deckelman contributed to this review

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