By Katy Burne Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--High-grade corporate issuers flooded investors with more than $5 billion of new bonds Tuesday, even as mountains of debt in Ireland and other European sovereigns continued to cast a pall over the market.
While a long way off the record daily issuance tallies from earlier in the year, the day's volume put it on track to be the busiest day since Nov. 8, when $13 billion of U.S. investment-grade debt was sold, according to data provider Dealogic.
Before Tuesday, November had seen just shy of $60 billion of new high-grade bonds.
The extent of investor appetite only served to highlight how fresh fears over government deficits in Europe are making corporate debt look even more attractive than before.
"Investors still have plenty of cash to put to work in the investment-grade [corporate] new issue market," said John Hines, head of debt syndicate at Wells Fargo Securities. "Despite the volatility, high-grade bonds remain a very attractive asset class for them relatively speaking."
A $2 billion bond offering by American International Group Inc. (AIG)--the insurer's first since late 2008, when it needed a bailout from the U.S. government--received $7.5 billion in orders, according to people familiar with the sale. The company is trying to demonstrate it can access the capital markets again after the government bailout.
The level of investor interest let AIG price one part of the deal--$500 million of three-year notes--to yield 2.95 percentage points over comparable Treasurys. That compares with guidance of 3.125 percentage points before the sale, meaning the investors are being paid less than anticipated to take on the debt. Similarly, $1.5 billion of 10-year notes were priced to yield 3.625 percentage points over Treasurys, compared with pre-sale estimates of 3.75 percentage points.
A two-part, $1 billion deal from oil and gas company Apache Corp. (APA) received orders in the range of $2.7 billion: $1.8 billion on $500 million of 10-year bonds and $900 million on an equal amount of 31-year bonds, said sources tracking the deal.
Apache's 3.625% bonds due in February 2021 priced at 0.95 percentage points over Treasurys for a yield of 3.747%, and its 5.25% bonds due in February 2042 priced at 1.25 percentage points for a yield of 5.361%. Price guidance had been in the area of 1 percentage point and 1.30 percentage points, respectively.
Proceeds are expected to be used to pay down debt the company assumed as part of its acquisition of Mariner Energy Inc. in November. That includes $300 million of notes bearing interest at 7.50% due 2013, $300 million in 11.75% notes due 2016 and $300 million of 8% paper due 2017. In all, Apache said it assumed about $1.6 billion of Mariner debt at time of closing.
Two further deals were increased on demand: one a two-part issue by concrete products manufacturer CRH America Inc. (CRH) that grew by $250 million to $750 million, and one for Harris Corp. (HRS), a maker of digital radios, which grew by $100 million to $700 million.
Also in the market were Incitec Pivot Finance (IPL.AU), an Australian industrial chemicals and fertilizer company, with $500 million of five-year bonds; and Puget Energy, a unit of Bellevue, Wash.-based utility holding company Puget Holdings LLC, with a $350 million issue.
The Incitec bonds priced at 2.75 percentage points over Treasurys for a yield of 4.179%, while the Puget deal is expected to price Wednesday morning. Meanwhile, CRH's five-year bonds were offered at 2.75 percentage points over Treasurys, and its 10-year bonds were offered at 3 percentage points.
Harris priced $400 million of 4.40% 10-year bonds at a discount to yield 4.471%, or 1.65 percentage points over Treasurys, and $300 million of 6.15% 30-year bonds to yield 6.19%, or 2.05 percentage points over Treasurys. Proceeds will help it repay some of the debt the company took on when it acquired satellite-communications provider CapRock Communications for about $525 million in July.
Away from the new issuance, secondary trading in bonds was thin but reflected the concern over sovereign contagion in Europe--particularly among financial issuers. The price of J.P. Morgan's (JPM) 4.250% bonds due October 2020 fell to 97.687 from 97.858 on Monday, and the yield rose to 4.543% from 4.521%, according to online trading platform MarketAxess.
Similarly, Goldman Sachs's (GS) 3.7% debt due August 2015 lost ground, trading at a price of 102.081 versus 102.334 Monday for a yield of 3.215% compared to 3.157% the day before. Bond yields rise as prices fall.
"Credit markets had gone a number of months separating that European sovereign volatility from our domestic bond market and now it is having more effect on U.S. credit markets," said Hines. "You're seeing more volatility in financials than in corporates."
-By Katy Burne, Dow Jones Newswires; 212-416-3084; katy.burne@dowjones.com
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