Financial Issuers Are Poised Ahead of Fed Policy Meeting
May 18, 2011
Issuers such as banks and financial companies, with frequent financing needs, often try to time issuance in such a way as to achieve the most attractive rates. Issuers out of the box ahead of Friday's jobs report for August are ``making a bet that short-term rates are going up,'' said Denny Mize, corporate bond strategist at Salomon Brothers Inc.. Such banking names as Mellon Bank, Keycorp, National City and Signet Banking are chatted in the market as considering deals of around $250 million with intermediate maturities. In the primary market Wednesday, Capital One Financial of Falls Church, Va., and Associates Corp. of North America -- the finance unit of Ford Motor -- entered the market Wednesday to price deals, part of the session's nearly $850 million of corporate debt offerings. Capital One Financial priced $200 million of 10-year bank notes with a 7.15% coupon to yield 7.167%. The notes, which include a three-year put option, were priced at a yield spread of 0.60 percentage point above three-year Treasurys. J.P. Morgan Securities Inc. was lead underwriter. A put is an option to sell a security at a specified price, within a limited period. The notes are rated Baa3 by Moody's Investors Service Inc. and triple-B-minus by Standard & Poor's Ratings Group. Meanwhile, Associates Corp. priced $400 million of noncallable two-year notes with a 6 1/2% coupon to yield 6.525%, a yield spread of 0.17 percentage point above Treasurys. The issue is rated double-A3 by Moody's and double-A-minus by S&P. Southwest Airlines Co. priced about $146.4 million of P-T Trust equipment trust certificates in two parts through lead manager Morgan Stanley & Co.. Equity Residential Properties Trust priced a $100 million issue of cumulative preferred shares, with a 9.125% dividend rate. Equity Residential owns and operates properties through ERP Operating L.P. In the secondary markets, investment-grade yield spreads in general were quoted 0.01 percentage point tighter. But high-yield bond prices fell 1/4 point across the board, pressured by Treasurys. Prices of Penn Traffic's debt, meanwhile, fell in active dealings after the Syracuse, N.Y., supermarket operator reported disappointing quarterly results. Penn Traffic's 9 5/8% senior subordinate notes due 2020 dropped 1 3/4 to 66 1/4, and the 8 5/8% senior notes due 2018 were quoted at 82 1/2, down 1/2. Penn Traffic said its same-store sales fell 3.6% for the second quarter from a year ago and 4% in August from the year-ago month.
