US CORP BOND WRAP-BHP Billiton's jumbo hybrid wows high-grade

By Paul Kilby and Natalie Harrison

NEW YORK, Oct (HKSE: 3366-OL.HK - news) 14 (IFR) - The US corporate bond market saw almost US$11bn of supply on Wednesday, led by large issues from Bank of America (Swiss: BAC.SW - news) and miner BHP Billiton (NYSE: BBL - news) , taking weekly high-grade volumes to well in excess of what many market participants had expected.

BHP Billiton, the world's biggest mining company, was on course to raise US$6.5bn-equivalent through one of the largest hybrid bonds ever seen out of the corporate sector - half of which was sold in the dollar market.

The deal defied some who doubted that even a mining company of BHP's calibre could pull off a hybrid trade in the wake of this year's dramatic decline in commodity prices.

The multi-currency bond - in euros, sterling and dollars - showed investors are still willing to add risk in the battered metals and mining sector at the right price.

"BHP is a strong credit but it operates in a weak sector," said Eve Tournier, head of pan-European credit at Pimco.

"There were some concerns that it wouldn't be able to issue hybrids in the current environment."

Launch yields showed the deal coming at roughly 300bp over fair value along the company's senior curve - higher than the standard 250bp sub to senior spread differential typically paid.

Bank of America, meanwhile, moved quick into the market following results to raise US$3.25bn from a two-tranche trade, comprised of a US$2.25bn five-year issue that launched 15bp inside IPTs of T+150bp area and a US$1bn 10-year tap that launched at T+167bp.

One banker away from the deal said the new issue concession was at 6-7bp for both tranches.

In all, nine high-grade issuers including a US$1bn senior issue for Bank of Nova Scotia (Other OTC: BKSHF - news) and others that had been in the pipeline for a while like Kookmin Bank, were due to price US$10.9bn.

If all come as expected, that will bring supply for the week to US$22.65bn - well above the US$15-$20bn that syndicate desks had expected, and still two days to go.

"Everyone knew that FIG would be the wild card, and we've seen some pretty big trades including BAC today and others like Mizuho," said one syndicate banker.

He highlighted the upsizing of a 10-year deal from DDR (NYSE: DDR - news) as a positive sign. At pricing of T+237.5bp, the company paid a minimal new issue concession of around 5bp on the US$400m deal in a sector that has paid up in recent weeks.

The return of volatility - triggered by a warning from Wal-Mart Stores that earnings will drop next year and disappointing retail sales and inflation data - could hold back some issuers.

One investor said Wal-Mart's bonds widened 6-8bp, while other retailers like Target (NYSE: TGT - news) also saw bonds weaken by 4-6bp.

By late afternoon, the Dow Jones Industrial Average was down more than 160 points, and 10-year Treasury yields back below 2%. The investment-grade CDX 25 index was 1bp wider at 84.75bp.

But the banker did not rule out more FIG supply.

"I wouldn't be surprised to see JP Morgan in the market." (Reporting by Natalie Harrison, Paul Kilby and Mike Gambale; Additional reporting by Robert Smith and Helene Durand; editing by Shankar Ramakrishnan)