Four $1 Billion-Plus Issuers Float Debt In US Markets

Date : 11/29/2011 @ 6:16PM
Source : Dow Jones News
Stock : Raytheon Company (RTN)
Quote : 169.37  0.59 (0.35%) @ 4:02PM

Four $1 Billion-Plus Issuers Float Debt In US Markets

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Back-to-back equity rallies provided a nice backdrop for corporate bond issuers to access the U.S. credit markets Tuesday, with at least four investment-grade issuers taking advantage of a hopeful buyer base.

Each of the deals were for more than $1 billion apiece, while the California Institute of Technology also got in the action with a rare, $350 million century bond offering.

Jeffrey Zavattero, managing director of credit products at Mitsubishi UFJ Securities, characterized the investment-grade primary bond market as "generally pretty strong" with new issues being absorbed well, unlike a few weeks ago when large issuers were making some pretty big concessions to push deals through.

Tom Farina, head of the credit sector team at Deutsche Bank, said the issuers tapping the market this week are well-known, high quality names, and that's helping to move the primary market along quite well. But a broader look at the corporate market reveals that activity isn't nearly as active as one might expect, with fears of the never-ending debt crisis in Europe continuing to weigh on investor decisions.

"Activity is dependent on the cross-currents in Europe and the market is pre-occupied with a few signs of credit stress--swap spreads, sovereign debt rates, the VIX [a benchmark measure of short-term volatility]," Farina said. "All these things are showing a level of stress much higher than normal."

Among the largest issuers in the primary market was The Walt Disney Co. (DIS), which offered investors a two-part bond deal totaling $1.6 billion. Disney sold $1 billion of 0.875% coupon, 3-year notes priced to yield 0.986%, for a spread over Treasurys of 0.60 percentage points. It sold 4.125%, 30-year bonds priced to yield 4.194%, for a spread to Treasurys of 1.25 points.

The 30-year spread compares with an outstanding Disney 30-year bond with a 1.19 point spread over Treasurys, according to MarketAxess, indicating the new bonds were priced with only a small concession.

Another large deal was John Deere Capital Corp.'s $1.1 billion, two-part offering. The affiliate of Deere & Co. (DE) sold 1.25% coupon, three-year bonds priced to yield 1.294%, for a spread to Treasurys of 0.90 percentage points, and 2% coupon, five-year debt priced to yield 2.023%, for a spread of 1.10 points. Both spreads are a slightly tighter, or better, than earlier price guidance.

Johnson Controls Inc. (JCI) also sold $1.1 billion in a three-part deal featuring five-year, 10-year, and 30-year maturities.

Farina said fundamental and technical factors, such as corporate balance sheets and cash inflows into the asset class, are the more favorable aspects of the corporate world right now, but they are being somewhat eclipsed by the headlines of Europe.

"The recent equity market rally is certainly painting a more favorable backdrop but credit markets aren't nearly as strong," Farina said. "We are better, but there's no equivalent to the Dow jumping 300 points. It wasn't that kind of a rally for us."

Raytheon Co. (RTN) also sold $1 billion of three-year and 30-year bonds, according to a person familiar with the deal.

The issue included $575 million of 1.40% coupon, three-year bonds priced at 1.05 percentage points over Treasurys and $425 million of 30-year maturity bonds sold at 1.80 points over Treasurys, the person said.

The Waltham, Mass., defense technology and industrial corporation announced earlier in the day it had struck a deal with the U.S. Air Force that allows it to begin production of its Miniature Air Launched Decoy, or MALD, a low-cost flight vehicle weighing less than 300 pounds that Raytheon describes as an "air-launched programmable craft that accurately duplicates the combat flight profiles and signatures of U.S. and allied aircraft."

Raytheon plans to begin delivering the MALD-J, which offers jamming capabilities to confuse enemy air defenses, in 2012.

Caltech's general obligation offering for its century bonds featured a 4.70% coupon maturing on Nov. 1, 2111. The bonds were priced to yield 4.744%, for a spread of 1.80 percentage points over the 30-year Treasury yield.

The highly rated bonds boasted Aa1 and double-A-plus ratings from Moody's Investors Service and Standard & Poor's, respectively--both just one notch from the coveted triple-A stamp.

Zavattero said the big question now is what's going to happen with just a few weeks of opportunity left for issuers to sell new debt.

"There is one or two weeks to issue, at most," he said. "Are investors going to scramble into the market because there won't be much paper around, or will they lighten up because of the uncertainty in Europe? It could go either way."

-By Patrick McGee, Dow Jones Newswires; 212-416-2382; patrick.mcgee@dowjones.com

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