Capital Markets

A Heartening Upturn in Corporate Bonds

Tuesday's activity, with $5.15b raised, approaches the $8.6b raised in the entire prior week.
Stephen TaubNovember 19, 2008

Showing encouraging signs of life, Tuesday was perhaps the most active day for new corporate bond issues since the global credit crunch intensified over the summer.

At least six companies raised $5.15 billion for the day, compared with $8.6 billion in new debt sold for all of last week, according to Thomson Reuters, and $10.6 billion for the previous week.

Like most other deals in recent weeks, however, Tuesday’s issuers had to pay a steep price to investors to complete their offerings despite their high credit ratings.

By far the largest offering came from Cellco Partnership, a joint venture of Vodafone Group and Verizon Communications that does business as Verizon Wireless. It sold $3.5 billion of paper in a two-part offering, up from the roughly $1 billion it had originally sought, according to Reuters. Cellco sold $1.25 billion of five-year notes, priced to yield 7.575 percent, or 537.5 basis points more than comparable Treasuries, and $2.25 billion of 10-year notes, priced to yield 8.662 percent, or 512.5 points over Treasuries.

The issues were rated A2 by Moody’s and Single-A by S&P. Banc of America Securities, Barclays Capital, Citigroup Global Markets, Morgan Stanley, Credit Suisse, RBS Greenwich Capital, and UBS Investment Bank were the joint bookrunning managers for the transaction, according to Reuters.

Supermarket giant Kroger Co. sold $600 million in five-year senior notes, $100 million more than originally planned, according to Reuters. They were priced to yield 7.549 percent, or 535 basis points more than Treasuries. The issue was rated Baa2 by Moody’s, BBB-minus by S&P and Triple-B by Fitch. Goldman Sachs and JP Morgan were the joint bookrunning managers, according to the wire service.

Electric utility Westar Energy sold $300 million in 10-year first mortgage bonds, according to Reuters, upsized from $250 million. They were priced to yield 8.75 percent, or 521.3 basis points over Treasuries. The paper was rated Baa2 by Moody’s, Triple-B by S&P and BBB-plus by Fitch. Deutsche Bank Securities and JP Morgan were the joint bookrunning managers.

Noble Holding International Ltd., an indirect wholly-owned subsidiary of Noble Corp., sold $250 million in 5-year senior notes, according to Reuters. They were priced to yield 7.449 percent, or 525 points over Treasuries. The notes were rated Baa1 by Moody’s and A-minus by S&P as well as Fitch. Noble, an offshore drilling contractor, said the proceeds will be used to repay $150 million of long-term debt of a subsidiary of Noble that matures in March 2009, $23 million of project financing debt of a subsidiary of Noble that matures in January 2009 and outstanding balances under Noble’s unsecured revolving bank credit facility, in each case plus accrued interest. The remaining proceeds are expected to be used for general corporate purposes. Goldman, Sachs & Co., Citigroup Global Markets Inc. and SunTrust Robinson Humphrey, Inc. acted as the book-running managers.

Southern California Gas Co., an indirect subsidiary of Sempra Energy, sold $250 million in five-year first mortgage bonds, according to Reuters. They were priced to yield 5.535 percent, 332 points over Treasuries. The notes were rated A1 by Moody’s, A-plus by S&P and Double-A by Fitch.

In another utility deal, Delmarva Power and Light Co., a subsidiary of Pepco Holdings Inc., also sold $250 million in five-year first mortgage bonds. This issue was priced to yield 6.448 percent, or 420 points over Treasuries, and was rated Baa1 by Moody’s, A-minus by S&P and Single-A by Fitch.