--Corporate bond issuance slows, but two jumbo deals get priced
--Trading improves despite uncertainty ahead of EU summit
--Borrowing costs still near record-lows
(Updated throughout with pricing details, Markit data in 2nd-3rd paragraphs, banker comment in 4th paragraph, and trading update in final paragraph).
By Patrick McGee
Corporate bond deals continued to trickle in Wednesday as companies push to get deals completed before the two-day European Union summit begins Thursday.
Conditions were favorable, with the stock market rising and few headlines making their way out of Europe. A broad gauge of corporate-bond health, Markit's CDX North America Investment Grade Index, improved 1.1% in late-afternoon trading.
The Markit index is based on credit default swaps that protect against corporate bonds defaulting. The improvement suggests the cost of protection is falling, despite uncertainty surrounding the EU summit.
"You'd think people might buy protection ahead of the summit, driving the spread wider, but that's not the case," said Michael Mutti, senior credit strategist at Stifel, Nicolaus & Co. "The market might just be getting tired of getting panicky before every EU meeting."
For home-security-products provider ADT Corp., the stable tone was encouraging enough to issue a three-part, $2.5 billion deal, while serial issuer General Electric Capital Corp., a unit of General Electric Co. (GE), sold $1.5 billion of three-year notes.
ADT, which is being spun off by parent company Tyco International Ltd. (TYC), sold bonds maturing in five-, 10-, and 30-year maturities. Launch terms indicated the bonds would offer 1.55, 1.90, and 2.25 percentage points more than Treasurys, respectively, reflecting the lower end of earlier price guidance.
They have provisional ratings of Baa2 by Moody's Investors Service, BBB by Standard & Poor's, and BBB-plus by Fitch Ratings.
Fitch noted the company boasts nationwide brand recognition with more than six million customers, adding that its subscriber-based business generates sustainable cash flow and solid liquidity.
GE Capital's three-year deal included fixed-rate and floating-rate notes. The 1.625% coupon fixed notes were priced at 1.25 percentage points more than Treasurys.
Among smaller deals, Liberty Interactive Corp.'s (LINTA, LINTB) multimedia retailer QVC Inc. sold $500 million of 10-year senior secured notes. They yielded 5.125%, or 3.499 points more than Treasurys. Markel Corp. (MKL), a property-and-casualty insurance-holding company, priced $350 million of 10-year notes yielding 4.919%, or 3.3 point over Treasurys.
The day was much quieter than Tuesday, when $8.25 billion was sold.
Market participants were expecting upwards of $15 billion in new issuance this week, in part because trading could be thin next week owing to the U.S. Independence Day holiday falling on a Wednesday.
According to Barclays, corporate bonds are yielding an average 3.29%, just 0.04 percentage point from the all-time record.
Actively-traded bonds improved in secondary trading, but overall the market lacked a real direction. Seven of the 10 most-active bonds outperformed Treasurys, according to MarketAxess.
Comcast Corp. (CMCSA) 10-year and 30-year bonds, which priced Tuesday, have improved 0.06 and 0.04 of a percentage point, respectively.
Spreads on 3M Co. (MMM) 10-year bonds that priced at a record-low 2% coupon last week tightened 0.04 of a percentage point Wednesday. The spread is now 0.52 point, versus 0.55 at issuance.
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