(Updates with new daily tally in third paragraph, final pricing
on Heineken bonds in fifth paragraph, investor comment in sixth
paragraph, and refreshed throughout.)
By Patrick McGee
Companies are piling into the U.S. debt markets ahead of
earnings-related blackout periods beginning next week.
Blackout periods are the time just ahead of earnings releases,
when companies cannot sell debt.
At least eight borrowers are floating a combined $9.25 billion
in new deals Tuesday, led by jumbo-sized deals from Dutch brewer
Heineken NV (HINKY), Toyota Motor Credit Corp., Banco do Brasil SA
(BDORY, BBAS3.BR), and French electric utility provider GDF Suez SA
(GSZ.FR).
The eight deals follow a record-setting September and third
quarter for high-grade volume, according to data provider Dealogic.
Companies are enticed by ultralow yields--which hit another
four-decade low Monday at 2.78%, according to a Barclays index--and
seemingly insatiable demand.
Heineken exploited investors' appetite with a $3.25 billion
four-pack featuring three-, five-, 10- and 30-year maturities. They
were priced to yield 0.859%, 1.469%, 2.771%, and 4.102%,
respectively, or 0.55, 0.85, 1.15, and 1.30 percentage points over
comparable Treasurys, reflecting the narrow end of earlier pricing
guidance. The deal is rated Baa1 by Moody's Investors Service and
BBB-plus by Standard & Poor's Ratings Services.
"Investors are scrambling for whatever they can get," said John
D. Ryan, director and portfolio manager at DWS Investments. Mr.
Ryan said he hasn't been buying much in the primary market, because
yields are low, but investors who are underexposed to corporate
bonds continue to find reason to bulk up.
On Monday, eager investors enabled General Electric Co. (GE) to
price a $7 billion issue, the third-largest sale this year. GE
spreads--the extra yield offered compared with U.S. Treasurys--have
tightened in Tuesday trading, indicating investors remain in "buy"
mode despite lower and lower yields.
GE's 10-year bond spread fell 0.09 percentage point to 0.91,
according to MarketAxess, while spreads on the three-year and
30-year tranches narrowed by 0.12 and 0.09 point, respectively. All
three GE bonds are by far the most actively traded issues in
Tuesday's market.
Other recent issues are improving too: The five-year, 2% coupon
bond from NYSE Euronext (NYX) is trading at a spread of 1.28
percentage points, or 0.17 point tighter than when issued
Monday.
Markit's CDX North America Investment-Grade index, a proxy for
investor confidence, improved 0.6% in Tuesday afternoon
trading.
When recent deals perform well, it helps persuade buyers to
continue playing in the primary market, helping make an attractive
climate for others' issuance.
The Banco do Brasil deal comprises $1.75 billion worth of
10-year bonds at a yield of 4%. That is down from earlier pricing
guidance of 4.125%, also reflecting strong demand. The deal carries
a provisional Baa1 rating from Moody's.
Toyota sold a $1.5 billion issue of 2017 notes yielding 1.262%,
or 0.65 percentage points over Treasurys. That represents its
lowest yield ever on five-year debt, according to S&P's
Leveraged Commentary Data service.
GDP Suez sold $1.5 billion worth of bonds, in five- and 10-year
maturities. They were priced at yields of 1.761% and 3.015%,
respectively, or 1.15 and 1.40 percentage points over Treasurys.
That reflects a 0.10-percentage-point improvement from earlier
terms.
Smaller issues include an $800 million issue from Realty Income
(O), a $300 million offering from Bermudian reinsurer Montpelier Re
Holdings (MRH) and a $100 million deal from Northern States
Power.
Also in the primary market, GE Capital, the financing arm of GE,
plans to sell $250 million of preferred shares. They have a 40-year
maturity date but can be redeemed by GE after five years.
-Write to Patrick McGee at patrick.mcgee@dowjones.com
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