Verizon, Petrobras lead USD20bn high-grade bond spree

By Shankar Ramakrishnan and Danielle Robinson

NEW YORK (Frankfurt: HX6.F - news) , March 10 (IFR) - Verizon Communications (LSE: VZC.L - news) and Petrobras (Berlin: PJXC.BE - news) led a group of nine issuers to the US high-grade bond market on Monday, raising a combined USD19.925bn and setting a new daily supply record for 2014.

In just the last six sessions, close to USD70bn of bonds have been issued by a variety of corporate and FIG issuers, and almost all of them have found substantial pricing leverage thanks to overflowing order books.

The pace has taken even bankers by surprise.

"The issuance run rate is tremendous," said one syndicate banker. "Many issuers are now bringing their plans forward to tap this overwhelming interest among investors for fixed income at the moment."

Orders for Verizon (NYSE: VZ - news) 's USD4.5bn five-part deal and Petrobras' USD8.5bn six-parter were heard to be about USD44bn combined, or over three times the size these companies hoped to raise.

"Investors simply have too much cash to put to work," said another banker. "There are a number of bond redemptions in the first quarter and on top of that investors are getting new cash. All that money is flowing into the primary markets because investors cannot buy in size or volume in the secondary markets."

VERIZON PRIORITIZES PRICING

Verizon demonstrated its enormous appeal with investors by attracting about USD21bn of orders for its offering, its biggest in the US dollar market since its USD49bn record-breaker last September.

There were more than 450 different accounts in the order books across the tranches of 5.25-year fixed and floating rate notes, as well as the seven-, 10- and 20-year tranches.

Despite the abundance of Verizon bonds outstanding, the five tranches priced between 10bp and 20bp tighter than initial price thoughts, and offered new issue concessions of only 1bp-4bp.

Verizon locked in pricing that offered, at most, 5bp of new issue concession on the USD1bn five-year fixed, which priced at Treasuries plus 95bp; about 3-4bp for the USD1bn seven-year that priced at Treasuries plus 120bp; around 4bp on the USD1.25bn 10-year that priced at Treasuries plus 140bp and just 1bp for the USD1.25bn of 20-year notes priced at Treasuries 135bp.

Attractive pricing was one of Verizon's objectives - especially as it offered huge concessions on its September deal to ensure it financed the bond portion of its USD130bn acquisition of Vodafone's stake in Verizon Wireless in one hit.

"Verizon wanted to set a new precedent in the market with this deal, where the new issue concessions they paid were more typical of current conditions than what they paid for their USD49bn issue last September, when they had very specific corporate financing goals to attend to," said one market source.

More generous concessions on last year's mammoth trade actually helped it get tight pricing on its latest offering, because all of the acquisition-related bonds were trading well above par. The new bonds therefore offered a cheaper way of adding Verizon bonds into a portfolio.

The order book for each Verizon tranche broke down to USD3.6bn for the USD500m 5.25-year fixed rate portion; USD1.2bn for the USD500m 5.25-year floater, priced at 3mL+77bp; USD5.6bn for the USD1bn seven-year; USD5.4bn for the USD1.25bn 10-year and USD5.2bn for the USD1.25bn 20-year.

PETROBRAS JUMBO JAUNT

Brazilian oil firm Petrobras, meanwhile, ended up with a USD23bn order book, and it also used that demand to tighten pricing substantially through the bookbuilding process.

The trade was launched as a USD1.6bn three-year fixed at Treasuries plus 250bp, USD1.4bn three-year FRN at 3mL+236bp, USD1.5bn six-year fixed at plus 330bp, USD500m six-year FRN at Libor plus 288bp, USD2.5bn 10-year at Treasuries plus 350bp, and USD1bn 30-year fixed at plus 360bp. These levels were about 10bp tighter than IPTs.

Before the mandate announcement, the leads were quoting the existing Petrobras 3.25% 2017s, 3% 2019s, 4.375% 2023s and the 5.625% 2043s with G-spreads of 230bp, 265bp and 325bp and 335bp, respectively. That indicated a 35bp new issue premium against IPTs of Treasuries plus 360bp and plus 370bp on the 10- and 30-year bonds, and 30bp against the Treasuries plus 260bp IPTs on the new three-year. At final pricing, the concession on the three-year fixed was about 20bp.

Fair value for the six-year was seen closer to 305bp, taking into account a steep 40bp extension from five to six years, and thereby indicating a new issue premium of 25bp. On the 30-year bonds, the concessions looked closer to 20bp after adjusting a few basis points on the outstanding 2043s which were quoting around 80 cents.

SUSTAINABLE PACE?

Primary market activity was by no means reserved for those two issuers though, with seven others including Pacific Corp, DCP Midstream, Entergy Arkansas (NYSE: EAB - news) and Southern California Gas Company along with banks such as Abbey National, BNP Paribas (Milan: BNP.MI - news) and Discover Bank also printing deals on Monday.

DCP Midstream brought the biggest corporate deal from this list with a USD725m two-tranche trade that tightened 20bp from the IPT stage. The final book was an impressive USD5.1bn. The five-year and 30-year bonds issued by the company were judged to have paid about 13bp each in new issue concessions.

BNP Paribas also took advantage of the great issuance conditions to raise USD2.25bn from a three-part deal that comprised of three-year fixed and floaters and five-year fixed rate notes. All three tranches tightened about 5bp from IPT stage through the process and were deemed to have carried concessions between negative 1bp to 4bp. The final order books were about USD3.5bn.

Expectations for supply this week had been in the region of USD30bn following a stellar period last week when almost USD50bn of deals printed from 36 issuers. After today's rush, those forecasts may well be raised.

"I am not sure this kind of pace of issuance is sustainable not because of investors losing interest in fixed income but because companies may not need to take on more debt," said one syndicate banker. "I won't be surprised if tomorrow there is not more than USD5bn issued in the high-grade market."

Banco Daycoval announced a USD300m five-year trade today, which will price on Tuesday.

VERIZON COMMUNICATIONS

Verizon Communications (VZ), Baa1/BBB+/A- (s/s/s), announced a USD benchmark SEC registered multi-part offering that consists of a 5.25-year (6/17/2019) fixed and/or FRN, 7-year (3/15/2021), 10-year (3/15/2024), and 20-year (3/15/2034). The notes contain a MWC and then a 3mo par call prior to maturity on the 10-year and 30-year tranches.

The active bookrunners are Citigroup (NYSE: C - news) , Mitsubishi (Dusseldorf: MBI.DU - news) , Royal Bank of Scotland and Wells Fargo (Berlin: NWT.BE - news) . The passive bookrunners are Golman Sachs and UBS (Xetra: UB0BL6 - news) .

UOP: For the purchase of notes that are validly tendered in connection with the tender offers commenced by us on 3/10/2014, for the Cellco Partnership and Verizon Wireless Capital LLC 8.50% notes due 2018, Verizon Communications 8.75% notes due 2018, Alltel Corporation 7.00% debentures due 2016, Verizon Communications 5.55% notes due 2016, Verizon Communications 5.50% notes due 2017, GTE Corporation 6.84% debentures due 2018, Verizon Communications 6.10% notes due 2018 and Verizon Communications 5.50% notes due 2018, subject to the terms and conditions Specified in the related offer to purchase. Will use the remaining proceeds for GCP. Settle: T+5 (3/17/2014).

IPT: 5.25-year FRN libor equiv, 5.25-year FXD +105bp area, 7-year +135bp area, 10-year mid-hi 150s, 20-year +155bp area.

PRICE GUIDANCE: 5.25-year FXD T+95bp-100bp, 5.25-year FRN Libor equiv, 7-year T+120bp-125bp, 10-year T+145bp area (+/- 5bp), 20-year T+140bp area (+/- 5bp)

LAUNCH: USD4.5bn 5-part total. USD500m 5.25-year FXD T+95bp, USD500m 5.25-year FRN 3mL+77bp, USD1bn 7-year T+120bp, USD1.25bn 10-year T+140bp, USD1.25bn 20-year T+135bp

PRICED: USD4.5bn 5-part total.

- USD500m. Cpn 3mL+77bp. Due 6/17/2019 Ip par. Yld 3mL+77bp

- USD500m. Cpn 2.55%. Due 6/17/2019. Ip USD99.880. Yld 3.453%. T+95bp. MWC T+15bp.

- USD1bn. Cpn 3.45%. Due 3/15/2021. Ip USD99.982. Yld 3.453%. T+120bp. MWC T+20bp.

- USD1.25bn. Cpn 4.15%. Due 3/15/2024. Ip USD99.838. Yld 4.17%. T+140bp. MWC T+25bp.

- USD1.25bn. Cpn 5.05%. Due 3/15/2034. Ip USD99.925. Yld 5.056%. T+135bp. MWC T+20bp.

BOOK: USD21bn

NIC (NasdaqGS: EGOV - news) : 5.25-year 5bp (4.5-years to 5.25 years about 10bp), 7-year 3-4bp (FV T+116bp-117bp), 10-year 4bp, 20-year 1bp

COMPS:

3.650% September 14, 2018 at G+80bp (USD105)

4.500% September 15, 2020 at G+113bp (USD107)

4.500% September 2020 at G+111bp (USD107)

2.450% November 1, 2022 at G+123bp (USD89)

5.150% September 15, 2023 at G+133-35bp (USD108)

6.400% September 15, 2033 at T+134bp (USD116)

T 2.300% March 11, 2019 at G+77bp

T 3.900% March 11, 2024 at G+127bp

PETROBRAS

Petrobras Global Finance (guarantor Petroleo Brasileiro S.A.), Baa1/BBB/BBB, announced a USD benchmark SEC-Reg 6-tranche senior unsecured note offering via Bank of China, BB Securities, Bradesco, Citigroup, BB Securities, HSBC and JP Morgan (Other OTC: JPYYL - news) . Structure will include a 3-year (3/17/2017)) FXD, a 3-year (3/17/2017) FRN, 6-year (3/17/2020) FXD, 6-year (3/17/2020) FRN, 10-year (3/17/2024) FXD and a 30-year (3/17/2044) FXD. UOP: Capex under 2014-2018 Business Plan, GCP. Settlement date is 3/17/2014.

IPTs:

- 3-year (3/17/17) FXD at T+260bp (active bookrunners HSBC and Bank of China (Hong Kong)

- 3-year (3/17/17) FRN at 3mL+246bp (active bookrunners JP Morgan (Other OTC: MGHL - news) and Bank of China (Hong Kong)

- 6-year (3/17/20) FXD at T+340bp (via active bookrunners HSBC and BB Securities)

- 6-year (3/17/20) FRN at 3mL+298bp (via Citi and BBI)

- 10-year (3/17/24) FXD at T+360bp (via Citi and BBI)

- 30-year (3/17/44) FXD at T+370bp (via JP Morgan and BB Securities)

GUIDANCE:

- 3-year Fixed : T+250-260bp

- 3-year FRN : 3mL+236-246bp

- 6-year Fixed : T+330-340bp

- 6-year FRN : 3mL+288-298bp

- 10-year Fixed : T+350-360bp

- 30-year Fixed : T+360-370bp

LAUNCH: USD8.5bn six-part offering.

- 3-year Fixed: USD1.6bn at T+250bp

- 3-year FRN: USD1.4bn at 3mL+236bp

- 6-year Fixed: USD1.5bn at T+330bp

- 6-year FRN: USD500m at 3mL+288bp

- 10-year Fixed: USD2.5 bn at T+350bp

- 30-year Fixed: USD1.0bn at T+360bp

PRICED:

- 3-year Fixed : USD1.6bn; 99.957; 3.25%C; 3.265%Y; T+250bp

- 3-year FRN : USD1.4bn; 100; 3mL+236bp

- 6-year Fixed : USD1.5bn; 99.743; 4.875%C; 4.925%Y; T+330bp

- 6-year FRN : USD500m; 100; 3mL+288bp

- 10-year Fixed : USD2.5bn; 99.772; 6.25%C; 6.281%Y; T+350bp

- 30-year Fixed : USD1.0bn; 99.166; 7.25%C; 7.319%Y; T+360bp

BOOK: USD23bn.

NIC: 3-year: 20bp; 6-year: 25bp-30bp (fair value 305bp, 5s/6s extension 30bp); 10-year: 25bp; 30-year: 25bp

COMPS:

Petrobras 3.25% 2017s at G+230bp

3% 2019s at G+265bp

4.375% 2023s at G+325bp

5.625% 2043s at 335bp

BNP PARIBAS

BNP Paribas, A2/A+/A+ (s/s/s) announced a USD benchmark 3(a)2 exempt multi-part senior MTN deal that consists of a 3-year (3/17/2017) fixed and/or FRN and a 5-year.

IPT: 3-year FXD +70bp area, 3-year FRN Libor equiv, 5-year low 90s

PRICE GUIDANCE: 3-year FXD T+65 area (+/-3bp), 3-year FRN Libor+equivalent, 5-year FXD T+90bp area (+/-3bp).

LAUNCH: USD2.15bn 3-tranche deal

- USD1bn at T+62bp

- USD300m at 3mL+48bp

- USD850m at T+87bp.

RE-LAUNCH: USD2.25bn (upsized from USD2.15bn) 3-tranche deal.

- USD1.1bn 3-year FXD at T+62bp

- USD300m 3-year FRN at 3mL+48bp

- USD850m 5-year FXD at T+87bp.

PRICED: USD2.25bn (upsized from USD2.15bn) 3-tranche deal.

- USD1.1bn. Cpn 1.375%. Due 3/17/2017. Ip USD99.977. Yld 1.383%. T+62bp.

- USD300m. Cpn 3mL+48bp. Due 3/17/2017. Ip par. Yld 3mL+48bp.

- USD850m. Cpn 2.45%. Due 3/17/2019. Ip USD99.804. Yld 2.492%. T+87bp.

BOOK: 3-year FRN USD500m, 3-year FXD USD1.5bn, 5-year FXD USD1.5bn

NIC: 3-year FXD negative 1bp (3/5 curve 20bp), 5-year FXD 4bp

COMPS: BNP (Paris: FR0000131104 - news) 2.40% December 12, 2018 at G+83bp

ABBEY NATIONAL TREASURY SERVICES

Abbey National Treasury Services plc (AABEY), A2/A/A (n/n/s), announced a US$ benchmark SEC registered 3-part offering that consists of a 3-year fixed and/or FRN and a 10-year senior unsecured note. The notes are guaranteed by Santander UK plc. The joint bookrunners are Barclays (LSE: BARC.L - news) , Citigroup, Morgan Stanley (Berlin: DWD.BE - news) , Royal Bank of Scotland (LSE: RBS.L - news) and Santander. UOP: GCP. Settle: T+3 (3/13/2014).

IPT: 3yr FXD +75bp area, 3yr FRN Libor equiv, 10yr +137.5bp area

PRICE GUIDANCE: 3yr FXD T+65bp (the number), 3yr FRN: Libor equiv, 10yr T+130bp area (+/- 3bp)

LAUNCH: USD2.5bn 3-part total. USD1.1bn 3yr FXD at T+65bp, USD400m 3yr FRN at 3mL+51bp, USD1bn 10yr at T+130bp

PRICED: USD2.5bn 3-part total.

- USD1.1bn 1.375% 3-year (3/13/2017) fixed. At 99.883, yld 1.415%. T+65bp. 1st pay: 9/13/2014.

- USD400m 3-year (3/13/2017) FRN. 3mL+51bp. At 100, floats at 3mL+51bp. 1st pay: 6/13/2014.

- USD1bn 4.00%10-year (3/13/2024). At 99.332, yld 4.082%. T+130bp. 1st pay: 9/13/2014.

BOOK: 3-year FXD USD1.65bn, 3-year FRN USD600m, 10-year FXD USD1.9bn

NIC: 3-year FXD 4bp (3s/5s= 25bp FV=61bp), 10-year FXD 6-7bp (5s/10s= 35-40. FV=123.5bp)

COMPS:

3.05% August 23, 2018 at G+86bp

SOUTHERN CALIFORNIA GAS COMPANY

Southern California Gas Company (SRE), Aa2/A+/AA- (s/s/s), announced a USD250m (no grow) SEC registered 30-year first mortgage bond, Series OO. The notes contain a MWC and a six-month par call prior to maturity. The joint bookrunners are Citigroup, Credit Agricole (TLO: ACA.TI - news) , Loop Capital and Morgan Stanley. Co-managers are Blaylock and Great Pacific. UOP: repay existing debt. Settle: T+3 (3/13/2014).

IPT: T+80-85bp

PRICE GUIDANCE: T+80bp area (+/- 5bp)

LAUNCH: USD250m at T+77bp

PRICED: USD250m. Cpn 4.45%. Due 3/13/2044. Ip USD99.393. Yld 4.487%. T+77bp. MWC T+15bp.

BOOK: USD760m

NIC: 10bp (add 2bp to 3.75% 2042; fair value T+67bp)

COMPS:

SRE 3.75% September 15, 2042 at T+65bp (USD93.0)

XEL 4.30% March 15, 2044 at T+77bp

DISCOVER BANK

Discover Bank (DFS), Baa3/BBB/BBB (s/p/s), announced a USD400m 12-year (3/13/2026) 3(a)2 senior bank level notes. The active bookrunners are Bank of America (TLO: BAC.TI - news) , Deutsche Bank (Xetra: DBK.DE - news) and Royal Bank of Scotland. UOP: GCP. Settle: T+3 (3/13/2014). 1st pay: 9/13/2014.

IPT: T+170bp area

PRICE GUIDANCE: T+155bp area (+/-5bp).

LAUNCH: USD400m at T+150bp

PRICED: USD400m 4.25% 12-year (3/13/2026). At 99.702, yld 4.282%. T+150bp. 1st pay: 9/13/2014

BOOK: USD1.5bn

NIC: neg 2bp to flat (after adding 20bp to 2023s for 10s/12s curve)

COMP:

4.20% August 8, 2023 at G+132bp

ENTERGY ARKANSAS

Entergy Arkansas Inc (ETR), A3/A-, (s/s), announced a USD375m SEC registered long 10-year (6/01/2024) first mortgage bond. The notes contain a MWC and then a 3mo par call prior to maturity. Mitsubishi and Wells Fargo are the active bookrunners, with Bank of New York (Other OTC: BKNML - news) , CIBC, Stephens and Suntrust as passive bookrunners. UOP: repay all borrowings under the credit facility. Settle: T+4 (3/14/2014).

IPT: 105bp area

PRICE GUIDANCE: T+95bp area (+/- 2bp)

LAUNCH: USD375m at T+93bp

PRICED: USD375m 3.70% 10-year (6/01/2024). At 99.928, yld 3.709%. T+93bp. MWC+15bp.

BOOK: USD900m

NIC: flat (add 3bp to 3.05% '23; FV G+93bp)

COMPS:

3.05% June 1, 2023 at G+90bp

ETR Louisiana (A2/A-) 4.05% September 1, 2023 at G+87bp

ETR Mississippi (A3/A-) 3.10% July 1, 2023 at G+92bp

XEL (A1/A) 2.50% March 15, 2023 at G+74bp (USD93.0)

CMS (A1/A-) 3.375% August 15, 2023 at G+72bp

POM (A2/A) 3.50% November 15, 2023 at G+78bp

PPL (Frankfurt: PP9.F - news) (A2/A-) 2.50% September 1, 2022 at G+77bp (USD93)

PACIFICORP (Other OTC: PPWLM - news)

PacifiCorp (MIDAM), A1/A/A- (s/s/s), announced a USD425m (no grow) SEC registered 10-year (4/01/2024) first mortgage bond. The notes contain a MWC and a 3mo par call prior to maturity. The active bookrunners are BNP Paribas, Mitsubishi and Royal Bank of Canada. UOP: GCP, including retirement of short-term debt. Settle: T+3.

IPT: low 90s

PRICE GUIDANCE: T+85 area (+-2).

LAUNCH: USD425m at T+83bp

PRICED: USD425m. Cpn 3.60%. Due 4/1/24. Ip USD99.940. Yld 3.602%. T+83bp. MWC T+15bp.

BOOK: USD1.1bn

NIC: 3bp (add 1bp to 2.95% 2023; FV T+80bp)

COMPS:

2.950% February 1, 2022 at G+80bp

2.950% June 1, 2023 at G+79bp (USD95.75)

4.100% February 1, 2042 at T+76bp (USD93.94)

MIDAM (Aa1/A) 3.700% September 15, 2023 at G+80bp

MIDAM (A2/A) 3.375% August 15, 2023 at G+82bp

DUK (Aa2/A) 2.800% May 15, 2022 at G+71bp

DTE (Aa3/A) 3.650% March 15, 2024 at G+73bp

EIX (Aa3/A) 3.500% October 1, 2023 at G+78bp

XEL (A1/A) 2.500% March 15, 2023 at G+74bp USD94.12)

CMS (A1/A-) 3.375% August 15, 2023 at G+76bp

DCP MIDSTREAM

DCP Midstream Partners (DPM), expected ratings Baa3/BBB-/BBB-, announced a USD725m (no grow) SEC-Reg 2-part senior unsecured notes via Royal Bank of Scotland, Suntrust and US Bank as active, with JP Morgan, Royal Bank of Canada (Toronto: RY-PC.TO - news) and Wells Fargo as passive. Co-mgrs BBVA (Amsterdam: BBV.AS - news) /BOTM/CS/DB/DNB (Other OTC: DNBHF - news) /SCOTIA. Structure will consist of a 5-year (4/1/2019) and a 30-year (4/1/2044). Make-whole call along with a 1-month and 6-month par call apply. UOP: To pay purchase price for the Transaction and GCP. Settlement date T+3.

IPT: 5-year +140bp area, 10-year +215bp area

PRICE GUIDANCE: 5-year T+125bp area, 30-year T+200bp area. Area +/- 5bp

LAUNCH: USD725m total. USD325m 5-year at T+120bp, USD400m 30-year at T+195bp

PRICED: USD725m 2-tranche deal.

- USD325m. Cpn 2.70%. Due 4/1/2019. Ip USD99.410. Yld 2.826%. T+120bp. MWC T+20bp.

- USD400m. Cpn 5.60%. Due 4/1/2044. Ip USD99.006. Yld 5.669%. T+195bp. MWC T+30bp.

BOOK: 5-year USD3.1bn, 30-year USD2bn

NIC: 5-year 13bp (3/5 curve 30bp), 30-year 13bp (5/10 curve 10bp)

COMPS:

2.50% December 1, 2017 at G+77bp

3.875% March 15, 2023 at G+172bp (Reporting by Shankar Ramakrishnan and Danielle Robinson; Editing by Natalie Harrison)