High-Grade Companies Sell $3.1 Billion, Sentiment Weakens
May 14 2012 - 5:37PM
Dow Jones News
High-grade corporate issuers sold $3.1 billion of new debt
Monday despite continued deterioration in sentiment and a broad
market selloff.
Kellogg Co. (K) led the way with a three-part, $1.45 billion
issue aimed at raising funds in connection with its $2.7 billion
acquisition of potato chip maker Pringles.
The cereal maker's deal comprised three-, five-, and 10-year
maturities offering yields of 1.165%, 1.864%, and 1.774%,
respectively, or 0.80, 1.15, and 1.45 percentage points over
comparable Treasurys.
The five- and 10-year coupons of 1.75% and 3.125%, respectively,
were record lows for the company, according to Standard &
Poor's LCD.
Among smaller deals, waste collector Republic Services (RSG)
issued $850 million to redeem some 2017 bonds, Cameron
International (CAM) sold $500 million to acquire a drilling
equipment business from TTS Group ASA (TTS.OS), and Westar Energy
expanded a prior debt issue by $300 million.
The four deals came on a day when broader sentiment was
unraveling for a second session. Markit's CDX North America
Investment-Grade Index, a barometer of corporate bond sentiment,
worsened by more than 5%, again, to a fresh four-month low, one of
the worst back-to-back sessions of 2012.
Individual bonds weakened substantially while safe-haven assets
rallied, as reflected by the six-basis-point drop in the 10-year
Treasury bond yield. The weakening was led by bank bonds, which are
selling off in the fallout of J.P. Morgan (JPM) last Thursday
projecting a $2 billion trading loss related to derivatives.
J.P. Morgan's 4.5% 2022 bond widened 8 basis points Monday to
204, among its highest since late February, according to
MarketAxess.
Goldman Sachs Group (GS) bonds did worse, as spreads on its
5.75% 2022 bond widened 15 basis points to 347, contributing to a
31-basis-point deterioration month-to-date.
But with corporate bond trading at record low yields last week,
the market still proved enticing to borrowers. Syndicate desks are
projecting around $20 billion could be issued this week as
borrowers take advantage of low yields.
One syndicate manager who was surprised by the number of deals
Monday was confident in the morning that demand would be
strong.
"The deals have enough concession or enough quality to the name
to get done," he said. "The truth is, a lot of investors have money
to put to work."
-By Patrick McGee, Dow Jones Newswires; 212-416-2382;
patrick.mcgee@dowjones.com
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