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By Natalie Harrison and Davide Scigliuzzo
NEW YORK, June 1 (IFR) - After months of an incessant flowof primary deals, fatigue is finally showing up in the UShigh-grade market.
Nine high-grade companies including Starbucks and MarathonOil were set to raise just over US$10.5bn on Monday, but someclearly struggled to ratchet in pricing and ended up pricingdeals with inflated new issue concessions.
Barclays and Precision Castparts Corp paid double-digit newissue concessions on their respective US$1bn and US$2bn trades,while Estee Lauder widened price guidance by 10bp from theinitial price thoughts stage.
"We are still getting sizeable trades done but we are notseeing enough pricing leverage as before," said one banker.
"After buying into the rush of deals earlier, investors nowhave more manageable cash positions so they are not chasingevery deal tighter."
May's US$157bn of supply is the busiest for any month onrecord, and the year's tally is now around US$635bn.
This flood of paper has begun to weigh on spreads, reflectedin a 5bp widening in average high-grade bond spreads over the 10days up to last Friday to 138bp over Treasuries, according tothe Bank of America Merrill Lynch Master Index.
Average high-yield bond spreads have widened 3bp to 458bp inthat period.
Rate volatility has also made deal execution tougher. Yieldson 30-year Treasuries jumped 9bp to around 2.96% on Monday afterdata showed US manufacturing activity rebounded in May.
Though this has led to price sensitivity, issuers are stillbeing able to raise sizeable volumes through debt issuance.
On Monday, Brazilian oil company Petrobras managed to sell arare Century bond despite a wide-ranging corruptionscandal.
Petrobras raised US$2.5bn from the 100-year issue - itsfirst international debt foray in over a year.
After what was heard to be strong demand of well overUS$10bn, Petrobras brought in pricing to launch the deal at ayield of 8.45% - well inside initial price talk of 8.85% areaand at the tight end of guidance of 8.55% (plus/minus 10bp).
At launch, the deal looked to offer a pick-up of around110bp over the issuer's 30-year bonds.
More issuers are expected to brave the market tomorrow,while further ahead, Intel is expected to launch a jumbo issueafter the chipmaker said it would finance at least part of itsUS$16.7bn acquisition of Altera with new debt as well as cash.
Analysts at CreditSights expect Intel, rated A1/A+, to issueas much as US$12bn in bonds to finance the deal as the companywould have to pay tax on any cash it repatriates from overseasto help pay for the deal.
"Intel has about US$14bn of cash and short-term investmentson its balance sheet, (but) only about US$3bn of this is held inthe US," CreditSights analyst Erin Lyons said.
ALTICE TRADES UP IN HIGH-YIELD
The US high-yield market got off to a slower start for June,with only a US$300m 8-year non-call three senior issue forGlobal Partners expected to price on Monday.
Software company Informatica (Caa2/CCC+) has downsized itsplanned eight-year non-call three senior unsecured bond toUS$650m from the initially targeted US$750m, after tweaking thestructure of its LBO financing package.
At the same time, however, strong demand from investorsallowed the company to tighten pricing significantly, settingprice talk of 7.25% on Monday after sounding out investors withwhispers of low 8% last week.
The recent US$1.72bn three-tranche issue from cable firmAltice was also trading up in secondary. The US$1.1bn Opcosecured tranche was bid at 101, having priced at par on Friday,while the US$300m holdco was up at 101.25 from par pricing andthe US$320m super holdco at 99.75 from its 98.275 launch price.
"The opco secured was a blowout," said one banking source.
"The other two tranches came a bit wide of whispers asinvestors didn't buy into Altice's story that it could bring inmargins as much as it said it could."
The bond financed Altice's US$9.1bn acquisition ofSuddenlink Communications. (Reporting by Natalie Harrison and Davide Scigliuzzo;Additional reporting by Paul Kilby; Editing by ShankarRamakrishnan)
