2nd UPDATE: Hartford Financial, Shell Tap Bond Demand
18 Marzo 2010 - 9:07PM
Dow Jones News
Hartford Financial Services Group Inc. (HIG) offered its first
corporate bond deal since 2008 Thursday as part of its plan to
repay $3.4 billion in federal bailout funds.
Hartford's $1.1 billion three-part bond deal sold at attractive
rates that underscored the recovery of the capital markets. The
sale came a day after the insurer priced $1.45 billion in equity
and $500 million in convertible bonds.
In addition to helping to buy back preferred stock from the
government, proceeds from the bonds will help Hartford refinance
debt maturing in 2010 and 2011. Hartford had been hit hard by
investment losses and annuity obligations during the market panic
of 2008.
The insurer's deal came as Shell International, the finance arm
of oil major Royal Dutch Shell, was marketing $4.25 billion in
high-grade bonds, tying for the sixth-largest deal so far this
year, according to data provider Dealogic. Meanwhile, J.P. Morgan
and Credit Suisse each shopped around $1.5 billion deals.
"It's been a food fight for new deals," said Mirko Mikelic,
portfolio manager at Fifth Third Asset Management in Grand Rapids,
Mich. "Cash is burning a hole in people's pockets."
New deals are seeing orders well in excess of their size,
according to market participants. Indeed, demand allowed Hartford
to offer investors a smaller risk premium--less compensation over
risk-free Treasurys--than forecast when the deal was earlier
shopped around.
In addition, the risk premiums on the five-, 10-, and 30-year
bonds were much lower than those seen on financial bonds with
similar maturities and ratings, based on Bank of America Merrill
Lynch data as of Wednesday. For instance, a financial bond rated in
the triple-B to A range and maturing between 5 and 10 years yields
2.98 percentage points over Treasurys, while Hartford's new
five-year was launched at 1.60 percentage points over
Treasurys.
The risk premium on the new 30-year note is even 10 basis points
lower, at 2.05 percentage points over Treasurys, than the risk
premium on a 6.1% note due 2041, quoted at 2.15 percentage points
over Treasurys on MarketAxess.
Risk premiums, after a blip last month from concerns over
European debt woes, have been grinding lower as investors snap up
highly rated bonds yielding more than government securities.
"They're trying to grab yield where they can," said Joe Calvo,
head of corporate credit trading at R.W. Pressprich & Co., a
fixed income broker-dealer in New York. He added, "memories are
short."
Thursday's slate of new bonds follows offerings from SLM Corp.
(SLM), or Sallie Mae, and American International Group Inc.'s (AIG)
International Lease Finance Corp. unit, two issuers who underscore
the recovery in the credit markets, said some observers.
"These sectors had a little bit of a challenge accessing markets
the last few years," said Guy LeBas, chief fixed income strategist
at Janney Montgomery Scott in Philadelphia. "These issues this week
were accepted pretty well in the market, indicating that liquidity
problems are getting solved."
-By Romy Varghese, Dow Jones Newswires; 215-656-8263;
romy.varghese@dowjones.com
(Prabha Natarajan also contributed to this article.)
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