UTX Reinvigorates Corporate Bond Market; $3.55 Billion Sold Tuesday
05/29/2012| 05:24pm US/Eastern
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--Eastman Chemical leads new-issue calendar with $2.4B, three-part offering
--Last week's United Technologies deal continues to perform well
--Bond yields remain near all-time lows
(Rewritten throughout, with final deal prices in 4th-5th paragraphs, Barclays index data in final paragraph.)
By Patrick McGee
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Improvement in the credit markets spurred three borrowers to sell a combined $3.55 billion of bonds Tuesday, placing the holiday-shortened week on track to meet volume expectations of $10 billion to $15 billion.
Eastman Chemical Co. (>> Eastman Chemical Company) led the new-issue market with a $2.4 billion, three-part deal, followed by an $850 million offering of 10-year bonds from French food company Danone SA (DANOY, BN.FR) and a $300 million deal of 10-year debt from Whirlpool Corp. (WHR).
The Eastman Chemical and Whirlpool deals are each rated in the triple-B range, whereas last week's issuance was dominated by single-A borrowers, noted Ryan Newth, director of corporate syndicate at SunTrust Robinson Humphrey. Investors have been comforted by the rising prices of newly issued bonds, enabling lower-rated issuers to access the market with more confidence, he said.
The Eastman deal featured five-, 10- and 30-year maturities. They priced at respective yields of 2.472%, 3.691%, and 4.845%, or spreads to Treasurys of 1.70 percentage points, 1.95 points and 2.0 points. The spread on each has improved from earlier pricing guidance, indicating strong demand.
The Danone deal, which carries single-A ratings, was priced to yield 3.035%, or 1.3 percentage points over Treasurys, while the lower-rated Whirlpool deal was priced to yield 4.719%, or 3.0 points over Treasurys.
Dealogic counted $16.6 billion of high-grade issuance last week, thanks largely to the $9.8 billion offering from United Technologies Corp. (>> United Technologies Corporation). After garnering almost four times the needed orders, the UTX deal has continued to improve in the secondary market. That helps the confidence of issuers and investors alike in participating in more deals.
Newly issued bonds are more traded than older bonds, so they are considered a way to gauge sentiment. According to Newth, the UTX deal "reinvigorated the market."
UTX's 10-year bonds were issued at a spread of 1.05 percentage points over Treasurys. They since have tightened to 0.81 point, including a 0.03-point improvement Tuesday, MarketAxess shows. UTX's three-year bond spreads have been pulled in 0.10 point Tuesday, narrowing the spread to just 0.53 point compared to 0.80 at issuance.
McDonald's Corp. (>> McDonald's Corporation) bonds are outperforming as well. Its three-year bonds issued last Wednesday recently traded at a spread to Treasurys of 0.33 percentage point, marking a 0.10-point tightening from Friday and 0.12 points better than issuance.
The better conditions are reflected in Markit's CDX North America Investment-Grade Index, which strengthened one basis point in midafternoon trading to 117, its lowest level since May 14.
A basis point is one-hundredth of a percentage point, and the figure represents the annual cost to insure bonds for five years. At this level, the annual cost to insure $10 million of bonds would be $117,000. On May 18, it was $124,000, the costliest level of 2012.
Meanwhile, corporate bond yields remain near record lows, although elevated from rates earlier in the month. The Barclays U.S. corporate investment-grade index finished last week at 3.40%, compared with an all-time low of 3.25%.
-By Patrick McGee, Dow Jones Newswires; 212-416-2382; patrick.mcgee@dowjones.com
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