High-grade market sells US$5.185bn in new debt

By Danielle Robinson and Mike Gambale

NEW YORK, Sept 24 (IFR) - High-grade bond investors lapped up another acquisition financing on Wednesday, throwing around US$6bn in orders at a new US$1bn issue from Japanese drinks giant Suntory Holdings.

The deal, which will pay down loans associated with its purchase of Jim Beam maker Beam Inc, follows other M&A jumbo trades on Monday and Tuesday from Roche (US$5.75bn) and Sysco (US$5bn) - both of which offered enough spread to ensure good after-market trading.

"It's turning into M&A week," said one syndicate manager. "All of these M&A financings have gone well."

That has kept investors thirsty for more, especially for a debut name like Suntory in a non-cyclical sector.

Just as Roche and Sysco did, Suntory started out with attractive initial price thoughts of 80bp area and 100bp area over Treasuries on what ended up being a US$500m offering of three-year fixed-rate notes and US$500m of five-years.

It built a book of around US$6bn at the peak, including a strong bid out of Asia overnight, but ended up with a final book of US$4.5bn after leads ratcheted in pricing a full 20bp on both tranches to 60bp on the three and 80bp on the five.

That was considered aggressive pricing, particularly for a Baa2/BBB rated company whose leverage has ballooned from 2.8x to more than 5x with its US$16bn acquisition of Beam.

"We dropped from the deal," said one portfolio manager. "Pricing was too aggressive for us."

Spreads have widened in the brewing sector of late, however, because of M&A noise around giants like Heineken (Other OTC: HEINY - news) , SABMiller (LSE: SAB.L - news) and AB InBev.

Investors were encouraged to look at two comparables, single-A rated Diageo (LSE: DGE.L - news) and Baa3/BBB- rated Pernod Ricard (Paris: FR0000120693 - news) , which could do new five-year trades at around 60bp and the low 100s respectively, according to one market participant.

STRONG DAY

Five other issuers also priced deals on Wednesday, taking the tally of the day to US$5.185bn, the week to US$23.257bn and the month close to a record September at US$125.018bn so far.

Dominion Resources (NYSE: D - news) went through considerable price discovery for a rarely seen hybrid offering of US$685m 5.75% 40 non-call 10-year fixed-to-floating enhanced junior subordinated notes.

The deal started out with IPTs in the mid 5.00% range, based on comps like National Rural's 4.75% 30NC10 trading at 4.85% and Prudential (HKSE: 2378.HK - news) 's 5.2% 30NC10 at 5.17%.

Dominion discovered that with little in the way of recent corporate hybrids as a true comp, however, it had to back up pricing slightly to 5.75% - a level which attracted strong sponsorship and led to tightening in the aftermarket.

At 5.75% the deal priced with a subordination premium to senior unsecured debt of around 210bp, versus a 150-180bp range on comps.

Elsewhere, Santander's UK arm Abbey National Treasury returned to the Yankee market for the second time this month and the third time this year.

Pricing US$500m of 1.65% three-year senior unsecured bonds at T+62.5bp and US$250m of three-year floaters at 41bp over Libor, books were an underwhelming US$1bn for a US$750m deal.

Abbey pulled in pricing from IPTs in the mid-to-high 60s to 62.5bp, or flat to comparables.

Fair value could be arrived at by looking at Abbey's recently issued 2.35% five-year notes, priced earlier this month at T+75bp and trading around T+77bp.

According to one banker covering financials, a new five-year from Abbey would come at around T+82bp. After deducting 20bp for the 3s/5s curve, fair value on a three-year would be around 62bp.

Offshore drilling company Ensco PLC (NYSE: ESV - news) attracted US$4bn of demand for a US$1.25bn deal evenly split between 10- and 30-year securities, after offering attractive coupons of 4.5% and 5.75% respectively for a Baa1/BBB+ credit.

Use of proceeds includes some of the costs associated with its current construction of seven rigs.

The closest pricing benchmark was the issuer's US$1.5bn 4.700% March 15, 2021 trading at G+172bp.

Adding 20bp for the 7s/10s curve suggested a 3bp new issue concession on the 10-year, priced at 195bp, and the same for the 30-year, priced at 250bp, after adding 55bp for the 10s/30s curve.

The large order book gave it strong price leverage, which saw bookrunners Citigroup (NYSE: C - news) and Deutsche Bank (Xetra: 514000 - news) pulling in pricing on the 10-year from IPTs in the low 200s.

ABBEY NATIONAL TREASURY SERVICES

Abbey National Treasury Services plc (ABBEY), A2/A/A, announced a US$ benchmark SEC registered 2-part senior note offering that consists of a 3-year (9/29/2017) fixed and/or a 3-year (9/29/2017) FRN. The notes are guaranteed by Santander UK plc. The active bookrunners are Bank of America, Deutsche Bank and Santander. UOP: GCP. Settle: 9/29/2014.

IPTs: mid to hi 60s on 3yr FXD

PRICE GUIDANCE: 3-year fixed T+65bp area (+/- 2.5bp), 3-year FRN Libor equiv

LAUNCH: US$750m 2-part. US$500m 3-year FXD at T+62.5bp, US$250m 3-year FRN at 3mL+41bp

PRICED: US$750m 2-part total.

- US$500m 1.65% 3-year (9/29/2017) FXD. At 99.901, yld 1.684%. T+62.5bp. 1st pay: 3/29/2015.

- US$250m 3-year (9/29/2017) FRN. At 100, floats at 3mL+41bp. 1st pay: 12/29/2014.

BOOK: Over US$1bn

NIC (NasdaqGS: EGOV - news) : flat (vs. 1.375% March 13, 2017 comp, add 5bp for maturity extension, fair value of G+62bp)

COMPS:

1.375% March 13, 2017 at G+57bp

2.350% September 10, 2019 at G+74bp

STANLN (A2/A+/AA-) 1.500% September 8, 2017 at G+56bp

STANLN (A2/A+/AA-) 2.400% September 8, 2019 at G+75bp

ENSCO PLC

Ensco PLC (ESV), Baa1/BBB+, announced a US$ benchmark SEC registered 2-part offering that consists of a 10-year (10/01/2024) and 30-year (10/01/2044) senior unsecured notes. The notes contain a MWC and a 3mo par call on the 10-year tranche and 6mo par call on the 30-year tranche. The active bookrunners include Citigroup and Deutsche Bank. UOP: General corporate purposes, which may include payments with respect to seven rigs currently under construction and other capital expenditures. Settle: 9/29/2014.

IPTs: T+low 200bp area/ 55bp curve

PRICE GUIDANCE: 10-year T+200bp area, 30-year T+255bp area. Area is +/- 5bp.

LAUNCH: US$1.25bn 2-part. US$625m 10-year at T+195bp, US$625m 30-year at T+250bp.

PRICED: US$1.25bn 2-part total.

- US$625m 4.50% 10-year (10/01/2024). At 99.864, yld 4.517%. T+195bp. MWC+30bp.

- US$625m 5.75% 30-year (10/01/2044). At 99.560, yld 5.781%. T+250bp. MWC+40bp.

BOOK: US$4bn total. 10-year: US$2.1bn, 30-year: US$1.9bn

NIC:

10-year: 3bp (7/10s curve worth 20bp, for fair value of G+192bp)

30-year: 3bp (10/30s curve worth 55bp, for fair value of G+247bp)

COMPS:

4.700% March 15, 2021 at G+172bp

COMPASS BANK

Compass Bank (BBVASM), Baa2/BBB/BBB+, announced a US$ benchmark 3(a)2 2-part offering that consists of a 3-year (9/29/2017) and 5-year (9/29/2019) senior bank notes. The notes contain a par call 1mo prior to maturity. The active bookrunners are BBVA, Citigroup, JP Morgan and Morgan Stanley (Xetra: 885836 - news) . UOP: GCP. Settle: 9/29/2014.

IPTs: 3-year +92.5bp area, 5-year +112.5bp area

PRICE GUIDANCE: 3-year T+85bp area, 5-year T+105bp area. Area is +/- 5bp.

LAUNCH: US$1bn 2-part. US$400m 3-year at T+80bp, US$600m 5-year at T+100bp.

PRICED: US$1bn 2-part total.

- US$400m 1.85% 3-year (9/29/2017). At 99.951, yld 1.867%. T+80bp.

- US$600m 2.75% 5-year (9/29/2019). At 99.768, yld 2.80%. T+100bp.

BOOK: US$2.5bn total. 3-year: $900m, 5-year: US$1.6bn

NIC: flat (using UNBC 2.25% '19, add 15bp for 3 notch ratings differential, fair value to G+80bp)

COMPS:

UNBC (A2/A+/A) 2.250% May 6, 2019 at G+65bp

DOMINION RESOURCES

Dominion Resources Inc (D), Baa3/BBB/BBB-, announced a US$685m (no grow) SEC registered 40-year (10/01/2054) non-call 10-year (10/01/2024) fixed to floating enhanced junior subordinated notes. The active bookrunners are Barclays (LSE: BARC.L - news) , Morgan Stanley, UBS (NYSEArca: FBGX - news) and Wells Fargo. UOP: General corporate purposes, including the redemption of all 2009 Series A 8.375% Enhanced Junior Subordinated Notes. Settle: 10/03/2014.

IPTs: Mid 5.00% area

PRICE GUIDANCE: 6.00% area

LAUNCH: 5.75%

PRICED: US$685m 5.75% 40yr (10/01/2054). At 100, yld 5.75%. Spread T+318.3bp. Fixed rate until 10/01/2024, then floats at 3mL+305.7bp. 1st pay: 4/01/2015.

BOOK: US$1.1bn

COMPS:

NRUC (A3/BBB+) 4.750% 30YR NC10 at 4.82%

NRUC (A1/A+) 3.400% November 15, 2023 at G+79bp

ALL (Baa1/BBB) 5.750% 40YR NC10 at 4.77%

ALL (A3/A-) 3.150% June 15, 2023 at G+80bp

PRU (Baa2/BBB+) 5.200% 30YR NC10 at 5.06%

PRU (Baa1/A-) 3.500% May 15, 2024 at G+107bp

EDF (A3/BBB+) 5.625% PERP NC10 at 4.98%

EDF (Aa3/A+) 4.875% January 22, 2044 at bid of 130bp

SUNTORY HOLDINGS

Suntory Holdings is set to price its first US dollar dual-tranche offering later. The Japanese beverage group is planning a 3-year and 5-year bonds. Bank of America, Barclays, BNP Paribas (Xetra: 887771 - news) , Citigroup, JP Morgan and Morgan Stanley are joint lead managers and bookrunners on the offering.

Proceeds from the benchmark-sized 144A/Reg S deal will go towards repaying loans used to buy US spirits company Beam Inc and for general corporate purposes. Suntory bought Beam for US$13.6bn earlier this year in a cash deal to become the world's third-largest spirits maker.

IPTs: 3-year T+80bp area, 5-year T+100bp area

PRICE GUIDANCE: 3-year T+65bp area, 5-year T+85bp area. Area is +/- 5bp.

LAUNCH: US$1bn 2-part. US$500m 3-year at T+60bp, US$500m 5-year at T+80bp.

PRICED: US$1bn 2-part total.

- US$500m 1.65% 3-year (9/29/2017). At 99.959, yld 1.664%. T+60bp. MWC+10bp. 1st pay: 3/29/2015.

- US$500m 2.55% 5-year (9/29/2019). At 99.795, yld 2.594%. T+80bp. MWC+15bp. 1st pay: 3/29/2015.

BOOK: US$4.5bn (peak US$6bn)

NIC: Debut offering

PT PELABUHAN INDONESIA III

PT Pelabuhan Indonesia III, Baa3/BB+/BBB- (s/s/s), announed a US$500m 10-year senior unsecured note offering via ANZ, Credit Suisse and Standard Chartered Bank. 144a/RegS. UOP: Refinancing of existing loan facilities, funding ofexpansion plans and general corporate purposes.

IPT: 5.25% area

PRICE GUIDANCE: 5% area (+/- 5bp)

LAUNCH: US$500m at 4.95%

PRICED: US$500m. Cpn 4.875%. Due 10/1/2024. Ip USD99.414. Yld 4.95%. Settlement date 10/1/2014.

BOOK: US$6.4bn (Reporting by Mike Gambale; and Danielle Robinson; Editing by Natalie Harrison and Marc Carnegie)