McDonald's, Union Pacific, UBS branch price deals in weaker market; Union Pacific tightens

By Andrea Heisinger and Cristal Cody

New York, July 28 - McDonald's Corp., Union Pacific Corp. and UBS AG, Stamford branch sold bonds on Wednesday as the steady stream of companies taking advantage of low rates continued.

Union Pacific priced its bonds first in a $500 million deal due 2021. The bonds were sold by early afternoon.

The Stamford branch of Swiss bank UBS announced its $2.5 billion offering of five-year bank notes late in the day and priced them well after 5 p.m. ET.

McDonald's sold its $750 million of bonds in two tranches due 2020 and 2040, with the 10-year tranche larger in size. The tranches both priced at the tight end of guidance.

Both McDonald's and Union Pacific last sold bonds at considerably higher spreads in the first months of 2009.

The new bonds from McDonald's and Union Pacific were seen stronger in the secondary market, while the notes from UBS widened on the bid side, traders said.

Overall investment-grade Trace volume dipped to about $11 billion from nearly $15 billion the previous day, according to a market source.

The CDX Series 14 North American investment-grade index eased on Wednesday 3 bps to a spread of 105 bps, according to a market source.

The Treasury Department had a "stellar" auction of $37 billion in five-year notes on Wednesday, a source said.

The five-year note was auctioned to yield 1.796%.

The yield on the benchmark 10-year Treasury note fell to 2.99% from 3.05%.

The yield on the 30-year bond fell 1 bp to 4.07%.

The government is selling a total of $104 billion in debt this week, concluding with the sale of $29 billion of seven-year notes on Thursday.

McDonald's two tranches

Fast food chain McDonald's sold $750 million of notes (A3/A/A) in two tranches before the market close, an informed source said.

The $450 million of 3.5% 10-year notes priced at a spread of Treasuries plus 55 bps. They priced at the tight end of guidance in the 60 bps area.

A $300 million tranche of 4.875% 30-year bonds sold at Treasuries plus 85 bps. The notes also priced at the tight end of talk in the 90 bps area.

The two tranches traded tighter in the secondary market, sources said.

The notes due 2020 traded late afternoon at 54 bps bid, 51 bps offered.

The 30-year bonds were seen slightly firmer at 84 bps bid, 81 bps offered.

Bookrunners were Bank of America Merrill Lynch, BNP Paribas Securities, Citigroup Global Markets and Goldman Sachs & Co. Inc.

Proceeds are being used for general corporate purposes, including paying off debt at maturity.

McDonald's priced a similar bond deal on Jan. 13, 2009. The bonds also totaled $750 million in 10-year and 30-year maturities. Both tranches priced significantly higher at 270 bps over Treasuries.

The company reported second-quarter earnings the previous week that were up from a year ago. McDonald's earned $1.23 billion, which was up from the $1.09 billion earned in Q2 2009. That was partly due to strong sales of drinks, like coffees and smoothies.

The issuer is based in Oak Brook, Ill.

Primary weakens

Stability waned slightly by late in the day, a source said, as bad news crept back into the headlines and some investors continued to be wary.

"It was weaker today," he said. "It felt heavy."

There was no single reason for the drop in the tone, other than "negative headlines, and news," the source said.

There was worry about what the new financial reform bill could do to hedge funds, as well as other headlines, such as California declaring a state of fiscal emergency for not having a budget in place.

Despite this weakness, issuers continued to price in the investment-grade market, with $3.75 billion more bonds pricing for the day. There has been about $12.25 billion in new deals for the week.

A couple of syndicate desks said that they had no more deals on their calendars for the week, while another larger one said it "could have something tomorrow."

High-caliber names have continued to come out of the woodwork after absences from issuing for a year or more in order to take advantage of low rates. Both McDonald's and Union Pacific had not issued bonds since the beginning of 2009.

Union Pacific sells $500 million

Union Pacific priced $500 million of 4% senior unsecured notes (Baa2/BBB) due 2021 by early afternoon to yield Treasuries plus 102 bps, a syndicate source away from the sale said.

In the secondary, the notes due 2021 firmed early in the afternoon to 101 bps bid, 99 bps offered, a trader said.

Later in the day, the notes were seen tighter on the offer side at 95 bps, another trader said.

Bank of America Merrill Lynch, J.P. Morgan Securities and Morgan Stanley & Co. Inc. ran the books.

Proceeds will be used for general corporate purposes, including a common stock repurchase.

Union Pacific reported an improved second-quarter profit of $711 million, up from $465 million a year ago. This was partly due to improved transport volumes, the company said.

It had been a while since the company sold bonds, with a $750 million deal priced on Feb. 17, 2009. That deal was in maturities of five-years and a long 10-year. The longer bond priced at a steep 350 bps over Treasuries.

The railroad transportation company is based in Omaha.

UBS branch prices five-years

UBS, Stamford branch sold $2.5 billion of five-year notes late in the day, a market source said.

The source said the notes priced at 192 bps over Treasuries. Full terms were not available at press time because of the lateness of the pricing.

In the secondary market, the notes due 2015 moved out on the bid side to 195 bps, according to a trader.

UBS Investment Bank was the bookrunner.

The Stamford branch of the Swiss bank last priced a $1.5 billion deal of 3.875% notes due 2015 on Jan. 12. Those bonds were priced at 150 bps over Treasuries, which was at a cheaper spread than the new ones.

The financial services company is based in Basel and Zurich, Switzerland.

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