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4-Traders Homepage  >  Equities  >  Nyse  >  General Electric Company    GE

Delayed Quote. Delayed  - 08/30 08:33:46 pm
31.355 USD   -0.02%
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CREDIT MARKETS: GE, Ford Steal Focus In Corporates

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04/24/2012 | 11:30pm CEST
   By  
 

General Electric Co. (>> General Electric Company) and Ford Motor Co. (>> Ford Motor Company) were the companies in focus in the corporate bond market Tuesday.

GE sold $3.1 billion in debt, the largest investment-grade deal so far this quarter and the first major bond issue so far this week, while Ford bonds benefited from a Fitch Ratings upgrade that bumped the car maker into the investment-grade category.

Meanwhile, Treasury prices sagged, as investors weighed some decent bond sales in Europe ahead of an update from the U.S. Federal Reserve on monetary policy Wednesday.

 
   Investment-Grade Corporate Bonds 
 

General Electric sold $3.1 billion of new debt Tuesday in the largest offering of the second quarter, single-handedly demonstrating that buyers are comfortable scooping up high-grade corporate debt.

GE priced $1.1 billion of floating-rate notes due in two years, giving investors 0.70 percentage point above the three-month London interbank offered rate. It also priced $2 billion of 2.30%-coupon, five-year fixed-rate bonds at 2.328%, or 1.50 points above Treasurys, according to a term sheet seen by Dow Jones Newswires.

Originally, only the five-year note was on offer. A banker working on the deal said it was "well oversubscribed" and motivated the company to add another tranche.

The Fairfield, Conn., company reported a 12% decline in first-quarter earnings last week, but the positive reception had more to do with it being the lone issuer in a market starved for bonds rather than any reaction to its first-quarter earnings, according to Susanna Gibbons, head of credit research in the fixed-income group at RBC Global Asset Management.

The GE deal is the largest high-grade bond issue since a Volkswagen unit borrowed $3.3 billion on March 19, according to Dealogic. It is also the first major deal to hit the primary market this week, following the two slowest weeks of new-issuance in 2012. The lull follows one of the busiest quarters on record.

 
   High-Yield Corporate Bonds 
 

Investors piled into Ford bonds Tuesday after Fitch raised its rating on the auto maker to investment-grade status for the first time since late 2005.

Ford bonds were some of the most actively traded high-yield bonds in Tuesday trading, according to MarketAxess. Its 2031 bonds jumped $3.50 per $100 of face value to $126 within two hours of the Fitch report. They ended the day at $126.

The yield spread on Ford's 7% coupon bonds due 2015 declined 0.89 percentage point, while other Ford bonds strengthened between 0.29 and 0.79 point. The spread is the extra return investors demand to own these bonds instead of comparable Treasurys. A narrower spread suggests investors consider the bond to be safer.

Dan Hannis, corporate bond trader at William Blair & Co., said there is a lot of retail investor appetite for Ford among investors, but they are waiting for another upgrade from Standard & Poor's or Moody's Investors Service. Two investment-grade ratings would classify Ford bonds as investment-grade rather than high-yield, or "junk."

 
   Mortgages 
 

Bank of America Merrill Lynch (>> Bank of America Corp) and Morgan Stanley (MS) are partnering on a bid for some $7.5 billion in complex commercial mortgage-backed securities taken on by the Federal Reserve Bank of New York during the 2008 bailout of American International Group Inc. (>> American International Group, Inc.), according to investors and other people familiar with the agreement.

The agreement forms the second partnership among banks invited by the New York Fed to bid on commercial real estate assets in its Maiden Lane III portfolio. Those that have banded together are trying to gather more bids in an effort to compete with Barclays PLC (BCS, BARC.LN) and Deutsche Bank (DB, DBK.XE), which have certain cost advantages to reselling the bonds that underlie the CDOs, analysts said.

Meanwhile, UBS Securities and Barclays plan to sell $1.1 billion of publicly registered commercial mortgage-backed securities with risk premiums above other recent issues, according to an investor familiar with the deal.

The dealers are likely to price the top, AAA-rated 10-year slice at a yield 120 basis points over interest-rate swap rates, the investor said. That is 5 basis points wider than a J.P. Morgan Chase & Co. (JPM) CMBS last week, and 15 basis points wider than CMBS sold in March.

 
   Municipal Bonds 
 

Prices of top-rated municipal bonds held firm Tuesday, even as Treasury prices slumped and a slew of new issues hit the market.

Munis "went through a mostly directionless session," as muted secondary trading activity and a flurry of new bond sales in the primary market "pulled players in both directions," said Thomson Reuters Municipal Market Data analyst Domenic Vonella in a market commentary.

New bond sales generally saw good reception. Ohio accelerated the sale of a bond deal for the Cleveland Clinic, taking bids from institutional investors a day ahead of schedule and lowering yields on some maturities. However, in a final pricing, it scaled back the size of its deal to its original size of $474 million. Earlier Tuesday, the state had increased the size to $555 million as it started taking bids from institutions.

Meanwhile, Houston, Texas lowered yields on parts of its roughly $270 million refunding bond deal. Lowering yields in a bond sale is a sign of strong demand from investors.

 
   Treasurys 
 

U.S. Treasury prices ended Tuesday trading at session lows as investors kept one eye on Europe and the other on the impending Federal Reserve policy update.

Jitters about Europe's financial and political troubles eased for the day after the Netherlands and Italy each managed to attract decent showings at their government bond sales. The Dutch offering drew solid demand despite its government's recent collapse, while Italy raised the maximum targeted 2.5 billion euros ($3.3 billion).

U.S. Treasury buyers also opted for the sidelines ahead of the Fed's Wednesday policy announcement, which will come alongside the central bank's updated rate and economic forecasts. Even though no new easing measure is expected to be announced, Federal Reserve Chairman Ben Bernanke's post-meeting press conference looms as a potential market mover, depending on how investors interpret his tone about the potential for future stimulus.

The benchmark 10-year fell 10/32 in price to yield 1.970%, while 30-year bonds declined 24/32 to yield 3.124%. Debt prices move inversely to their yields.

-By Kelly Nolan, Dow Jones Newswires; 615-679-9299; kelly.nolan@dowjones.com

--Patrick McGee, Al Yoon and Cynthia Lin contributed to this article.

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Financials ($)
Sales 2016 125 838 M
EBIT 2016 18 917 M
Net income 2016 12 599 M
Debt 2016 74 179 M
Yield 2016 3,00%
P/E ratio 2016 24,84
P/E ratio 2017 19,34
EV / Sales 2016 2,82x
EV / Sales 2017 2,45x
Capitalization 281 024 M
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Mean consensus OUTPERFORM
Number of Analysts 19
Average target price 33,7 $
Spread / Average Target 7,5%
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Jeffrey R. Immelt Chairman & Chief Executive Officer
Shane Fitzsimons Senior Vice President-Global Operations
Jeffrey S. Bornstein Chief Financial Officer & Senior Vice President
Jim Fowler Chief Information Officer
Victor Abate Chief Technology Officer & Senior Vice President
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