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12-06-2012 22:36:00

Bond Issuance Continues As Six Companies Sell $2.5 Billion

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By Patrick McGee

Companies are continuing to bring new debt deals to the market before Greece holds parliamentary elections on June 17, an event that has the potential to hurt risk sentiment and dry up bond issuance.

Six high-grade companies are issuing more than $2.5 billion combined Tuesday, following a $6.95 billion tally on Monday. The slew of deals to start the week indicate companies are confident they can find investors and borrow at low interest rates, yet they also suggest some nervousness about selling bonds later this month, according to market participants.

Unlike Monday, when five of the deals were for $750 million or more, including a $2 billion offering from AT&T Inc. (T), most of Tuesday's deals are small. Two 10-year transactions from Brazil led the way--Banco do Brasil (BBAS3.BR, BDORY) is selling $750 million, and aerospace and defense company Embraer SA (ERJ, EMBR3.BR) is selling $500 million--along with a $400 million deal from New York-based agribusiness Bunge Ltd. (BG).

Low interest rates continue to entice a variety of borrowers into the market, while investors are feeling comfortable, thanks to a wider-than-usual risk-premium, or spread, owing in part to ultralow Treasury rates.

According to Barclays, the average corporate bond yield was 3.32% Monday, just 0.07 percentage point from the all-time low. The average spread was 2.07 points, versus an average of 1.82 points over the past two years.

The dynamic enabled Embraer to cut the offered yields on its 10-year bond to 5.15%, versus 5.375% in original pricing guidance. Banco do Brasil launched its deal at 6%, versus 6% to 6.125% at original guidance, and it found the terms favorable enough to increase the size of its deal to $750 million from an original $500 million.

Other deals included a $300 million, 10-year deal from Florida Gas Transmission Co., a $325 million, subordinate debt deal from NextEra Energy Inc. (NEE), and a $250 million, five-year offering from Sallie Mae parent SLM Corp. (SLM).

The new deals found a receptive audience despite a mixed backdrop, with Markit's CDX North America Investment Grade Index, a proxy for risk sentiment, weakening between 0.3% and 1% in afternoon trading.

MarketAxess showed actively traded financial bonds were losing value to Treasurys, but nonfinancial corporates were stable or improving. Spreads jumped 0.14 percentage point on Goldman Sachs (GS) 2015 bonds and 0.05 point on J.P. Morgan (JPM) 2022 bonds, for instance, but Deere & Co. (DE) 2022 bonds tightened 0.04 point, and the 2043 bonds from natural gas company NiSource Inc. (NI) improved 0.06 point.

Deere and NiSource were each issued in the last week. When newly issued bonds improve in the secondary market, it helps persuade more investors and issuers to take part in the primary market.

Demand for new offerings could also be seen in the $1 billion offering from Hydro-Quebec, a government-owned public utility, and the five-year, $1.25 billion covered bond deal from National Australia Bank Ltd. (NABZY, NAB.AU). Neither is classified as a corporate bond by data provider Dealogic, which tracks issuance.

Hydro-Quebec sold five-year bonds to yield 1.399%, or 0.65 percentage point over the Treasury rate, while National Australia Bank Ltd. was on track to sell its bonds at 1.0 point over an industry standard midswap price.

The covered bonds are backed by the bank as well as a pool of Australian prime residential mortgages, earning them triple-A ratings.

Write to Patrick McGee at patrick.mcgee@dowjones.com

(END) Dow Jones Newswires

June 12, 2012 16:36 ET (20:36 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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