Small Deals Placed In Primary As Secondary Market Sells Off
December 08 2011 - 6:05PM
Dow Jones News
Just a few small deals hit the corporate bond market Thursday
following a heavy slate of supply in the first three days of the
week. Bonds in the secondary market sold off abruptly as hopes of a
nicely wrapped European resolution package unraveled.
New product among investment-grade debt totaled $1.3 billion
Thursday, following nearly $20 billion from Monday to
Wednesday.
Syndicate managers are now debating whether the corporate bond
pipeline is shut down for 2012 or if Friday and the next week will
see more issuers try their luck.
One syndicate source said investors aren't engaged near the end
of the year so issuers try to avoid it, but this week has been
surprisingly active with investors continuing to demand paper and
issuers wanting to get deals done before something potentially
blows up in Europe.
"You take a risk that investors aren't engaged at this time of
the year and weigh that against a stable backdrop in a market that
has a propensity to be volatile," he said. "If you have a few of
people being hopeful and everybody is on board, why not take the
chance and issue?"
The three sizable issuers that did brave the market Thursday
upsized their deals.
Florida Power & Light Co., a subsidiary of NextEra Energy
Inc. (NEE), sold $600 million of 4.125% coupon, 30-year
first-mortgage bonds at a price to yield of 4.139%, or a spread of
115 basis points over Treasurys. The deal was just $400 million
when it was announced, and pricing improved from earlier guidance
levels.
IDEX Corp. (IEX) sold $350 million of 4.2% coupon, 10-year notes
at a spread to Treasurys of 225 basis points. The deal was
originally for $300 million.
First Niagara Financial Group Inc. (FNFG) sold $350 million of
subordinated notes bearing an interest rate of 7.25% and due in 10
years. The bonds were sold at par to yield 528 basis points over
Treasurys. It was originally reported at $300 million.
The argument that issuance will shut down early received a major
boost in the afternoon as spreads in the secondary market widened:
Markit's CDX North America Investment-Grade Index, a benchmark
gauge of the U.S. corporate-bond market, deteriorated 6.3 points on
the day for a loss of 5.3%.
The culprit was a broad sentiment shift as rumors of a European
Central Bank purchase program were promptly replaced by ECB
President Mario Draghi denying the headlines.
"We've seen this six or seven times in the last few months," a
corporate bond trader said. "An anonymous source gets us hoping,
and then an official rains on the parade."
Bonds seeing heavy losses included 10-year paper issued by
Goldman Sachs Group Inc. (GS), Transocean Inc. (RIG) and Bank of
America Merrill Lynch (BAC). Their spread to Treasurys jumped 20,
28 and 36 basis points, respectively, according to MarketAxess.
Total trading volume surpassed $12.2 billion, according to
MarketAxess at 5:20 p.m EST. The monthly average in November was
less than $10 billion.
-By Patrick McGee, Dow Jones Newswires; 212-416-2382;
patrick.mcgee@dowjones.com
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