By Patrick McGee
The corporate-bond market has faltered somewhat this week amid
weak earnings, but conditions were strong enough Thursday to
support a combined $3.9 billion of new deals from five high-grade
issuers.
Two jumbo-size deals led the spurt of issuance: Nonprofit health
provider Catholic Health Initiatives sold $1.5 billion in a
three-part deal, and the Royal Bank of Canada (RY) priced $1
billion of three-year notes at the second-lowest fixed rate on
record for a bank for that maturity.
The five deals pushed weekly issuance to $12.4 billion, compared
with the $28.5 billion sold last week, according to preliminary
data from Dealogic.
Issuance has been slow this week while the credit rally pauses,
but "demand for new issue remained strong," according to
researchers at Bank of America Merrill Lynch.
Borrowers often pay investors a "concession" of extra yield on
new deals to entice buyers into the primary market, and concessions
can rise when investors are shunning riskier assets. But new deals
this week are yielding 0.12 percentage point less than comparable
debt in the secondary market, on average, according to BofA data
released Thursday.
Last week, deals offered 0.07 point more.
The negative concessions suggest appetite for new deals is
ravenous despite mixed trading in the secondary market. New deals
are usually the most easily tradeable, particularly for large
volumes; because secondary markets are relatively illiquid,
investors are sometimes willing to accept lower yields on new
offerings.
Admittedly, the average is skewed by Wednesday's $2.55 billion
deal from Reynolds American Inc. (RAI), a tobacco company. It paid
a negative concession of 0.30 percentage point on the 10- and
30-year portions of Wednesday's deal--its first U.S. debt offering
in five years.
Reynolds's spreads continued to ratchet down in secondary
trading Thursday. The 10-year bonds, issued at a spread of 1.50
percentage points, improved to 1.40 points; the 30-year bonds,
issued at a 1.90-point spread, now trade at 1.77 points, according
to MarketAxess.
The improvement was part of a broader recovery in credit markets
Thursday, helping to enable borrowers to find investors eager to
snap up bonds.
Catholic Health cut offered yields by as much as 0.20 percentage
point as it sold $250 million of five-year bonds to yield 1.606%,
or 0.80 percentage point more than Treasurys. It also sold $500
million of 10-year bonds at 2.981%, or 1.15 points over Treasurys,
and $750 million of 30-year bonds at 4.363%, or 1.40 points more
than Treasurys.
The highly rated deal comes with Aa3 ratings from Moody's
Investors Service and AA-minus ratings from Standard & Poor's
and Fitch Ratings.
RBC, meanwhile, sold $1 billion of three-year notes at a coupon
of 0.80%--the second-lowest rate on record for that maturity from a
bank, according to Dealogic. The yield was 0.375 percentage point
more than Treasurys.
When RBC sold $1.25 billion of three-year notes in March, it
paid 1.15%. One year ago, it paid 1.45%, Dealogic shows.
The record-low coupon for three-year bank debt is 0.75%, as set
by the Bank of Nova Scotia earlier this month, according to
Dealogic.
Among smaller deals, health-care-equipment manufacturer C.R.
Bard (BCR) sold $500 million of bonds, the Sydney Airport Finance
Co. issued $225 million, and Turkish oil refiner Tupras priced $700
million.
Write to Patrick McGee at patrick.mcgee@dowjones.com
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