Choppy week for high-grade ends on high note

By Shankar Ramakrishnan and Danielle Robinson

NEW YORK (Frankfurt: HX6.F - news) , March 21 (IFR) - It was a choppy week for the US high-grade primary market Thanks to some Fed-inspired volatility, but strong technicals and positive sentiment bode well to keep up the supply momentum.

The week began with Triple A rated ExxonMobil, which had not been to the bond markets since 1993, offering investors scarcity value with a USD5.5bn five-part trade.

The deal comprised three-year and five-year fixed and floating-rate notes along with a 10-year fixed. After some signs of investor fatigue at the end of the previous week, the oil giant announced the three-year fixed rate notes with IPT levels of mid-20bp over Treasuries, five-year fixed at mid-30s and 10-year in the high 50s.

As books built, levels tightened at guidance to plus 17bp area (three-year fixed), plus 27bp area (five-year fixed) and plus 50bp area (10-year fixed) - and these were squeezed another 2bp at pricing.

The three-year floater priced at three-month Libor plus 4bp, while the five-year floater was at Libor plus 15bp. Final order book was USD9bn.

The spread levels on the three-year and five-year bonds were the tightest ever for a benchmark corporate.

On the same day, DirecTV (Frankfurt: DIG1.F - news) returned to the bond market after an absence of more than a year, pricing a USD1.25bn offering of 10-year notes only 5bp tighter than initial thoughts. The order book at its peak was around USD2.8bn.

Satellite owner and operator SES Global Americas - the only investment-grade satellite company - provided some diversity with a USD1bn two-tranche trade comprising five-year and 30-year fixed rate notes well supported by a total USD4.5bn order book.

What had been a frantic pace of issuance began slowing on Tuesday when just six borrowers came out with modestly-sized deals as the buyside started to show signs of price sensitivity.

EOG Resources (NYSE: EOG - news) (A3/A-) raised USD500m in six-year bonds. The bonds were shown with IPTs of plus 95bp-100bp, which tightened to five-year Treasuries plus 95bp area at guidance and priced 2bp tighter on books of USD1.3bn.

Dominion Resources (NYSE: D - news) (Baa2/BBB+/BBB+) showed USD400m 3-years at IPTs of low 60s and guidance of 55bp area. It finally priced the bonds at plus 53bp and ended with order books of USD900m.

FIG FLOW

Mizuho Financial Group's USD1.5bn 4.6% 10-year subordinated bond issue - the first Basel III compliant Tier 2 transaction by a Japanese bank in the Yankee market - was the FIG highlight of the week. The trade attracted USD9.2bn of orders.

US investors considered it safer than most other Basel III compliant Tier 2 offerings because Japan's Deposit Insurance Law allows the Japanese government to inject capital into lenders before they get to the Point of Non-Viability (PONV).

The deal, rated BBB+/BBB, priced at 185bp, at the tight end of its 187.5bp area (+/-2.5bp) and inside the 188-190bp trading level of Aa3/AA minus rated ANZ's 4.5% 2024 Tier 2 notes.

Macquarie Bank priced a USD1.25bn offering comprised of three-year fixed and/or FRN senior unsecured notes this week, while Skandinaviska Enskilda Banken (Other OTC: SVKEF - news) (SEB (Paris: FR0000121709 - news) ) took out USD1.5bn by issuing five-year bonds on books of USD2.8bn.

Standard Chartered (HKSE: 2888.HK - news) left the US dollar market in buoyant mood on Friday afternoon when it priced a USD2bn 5.7% 30-year subordinated Tier 2 bond with ease.

Despite it being Friday, lead managers Bank of America (TLO: BAC.TI - news) Merrill Lynch, Goldman Sachs (NYSE: GS-PB - news) , JP Morgan (Other OTC: JPYYL - news) , RBC (MCX: RBCM.ME - news) and Standard Chartered built a USD6.5bn book at the peak after going out with attractive 230bp-235bp initial price thoughts.

The final book was USD6bn after squeezing spread in to 215bp guidance and then pricing at 210bp.

Standard Chartered set the IPTs at a prudent level, in deference to the fact that the largest and most liquid comparable was its 5.2% 2024 sub-debt securities, trading at a G spread of 225bp.

It also has 5.3% 2043 sub-debt which was trading around T+170bp pre-announcement. The 2024s tightened as the new deal was being marketed to trade around 214bp, suggesting the new issue concession was almost flat to the 24s.

CHANGE IN TONE

The market tone improved after the mid-week hiccup causes by new Fed Chair Janet Yellen's remarks, as recent new issues traded better in secondary and Treasury rates stabilized.

On Friday, four of the five tranches issued by ExxonMobil were trading either flat or about few basis points tighter from new issue pricing levels. DirecTV's 10-year bonds were about 18bp tighter than their plus 185bp pricing at plus 167bp/164bp, while SES Global America's two tranches were 7bp-8bp tighter.

"Issuers may have to recalibrate their approach to the market given the rise in rates, but other than that, technicals look solid enough to ensure we should get back to where we were in terms of pace of issuance pretty quickly," said one banker.

Lipper data showed that funds continued to attract a rush of flows. For the week ended March 19, Lipper reported an inflow of USD2.203bn into corporate investment grade funds (YTD total of USD26.318bn).

STANDARD CHARTERED BANK

Standard Chartered announced a 30-year Tier 2 subordinated notes issue. Bank of America Merrill Lynch, Goldman Sachs, JP Morgan (Other OTC: MGHL - news) , RBC Capital Markets and Standard Chartered will manage the offering of 144a/Reg S notes. The bonds are expected to be rated A3/A-/A+. The issuer is rated A2/A+/AA-.

IPT: T+230-235bp

PRICE GUIDANCE: T+215bp (+/-5bp)

LAUNCH: USD2bn at T+210bp.

PRICED: USD2bn. Cpn 5.70%. Due 3/26/44. Ip USD99.80. Yld 5.714%. T+210bp. First (Other OTC: FSTC - news) pay 9/26/14. Settlement date 3/26/14.

NIC (NasdaqGS: EGOV - news) : Flat to negative

COMPS:

5.2% 2024 sub at G+214bp

5.3% 2043 sub at T+170bp

HSBC 5.25% March 2044 sub Tier 2 at T+165bp

VOLUME STATISTICS

THIS WEEK'S VOLUME

20 Tranches for $16.413 BLN

WEEKLY TRANCHES FIXED VS FLOATING

Fixed 17 $14.663 BLN

Floating 3 X $1.750 BLN

20 Tranches for $16.413 BLN

WEEKLY TRANCHES BY MATURITY IG CORPS

5 X 3-YRS $3.900 BLN

4 X 5-YRS $4.250 BLN

1 X 6-YRS $500M

5 X 10-YRS $4.350 BLN

5 X 30-YRS $3.413 BLN

20 Tranches $16.413 BLN

THIS MONTH'S VOLUME

136 Tranches for $99.788 BLN

Fixed Vs Floating This Month

Fixed 115 X $86.038BLN

Floating 21 X $13.750 BLN

36 Tranches for $99.788 BLN (Reporting By Shankar Ramakrishnan and Danielle Robinson; editing by Marc Carnegie)