Commonwealth REIT does small deal; modest calendar for coming week; eBay trades 'pretty well'

By Aleesia Forni and Andrea Heisinger

New York, July 20 - The high-grade bond market sat mostly empty on Friday after a handful of new deals priced the previous day.

Commonwealth REIT sold an upsized $175 million of $25-par 30-year senior notes. The deal had gone overnight from Thursday, and the size was initially at $150 million.

There was $5 billion to $10 billion expected to price during the past week and, according to Prospect News data, roughly $14 billion in bonds came to the market.

A couple of large deals from Morgan Stanley and eBay Inc. boosted volume on Thursday, while issuance was light and composed of smaller trades for most of the rest of the week.

Some companies, such as eBay, U.S. Bancorp and Morgan Stanley, priced deals after reporting second-quarter earnings and that trend should continue in the coming week, sources said.

"I'm sure we'll have some looking if they need to go, but nothing definite now," a syndicate source said on Friday.

A market source said they were seeing "a light calendar, maybe $10 billion" for the coming week.

That could include some "opportunistic issuers if rates are good."

Many of the past week's deals did well, seeing solid demand from investors that made them multiple times oversubscribed. They saw the bonds sell at spreads below price guidance.

"I know some of the REITS came in 40 [bps] from whispers," the market source said, referring to the handful of $25-par offerings from real estate investment trusts during the week.

Although some potential issuers could look at the primary on Monday, others are more likely to price later in the week, the market source said.

A second source agreed with that, although he said that they were hearing of $15 billion of volume for the coming week, much of which could come on Wednesday or after.

Monday's deal load "depends on market conditions," she said.

In the secondary market, spreads were "generally wider," and one trader saw a "decent flow for a summer Friday."

The Markit CDX Series 18 North American Investment Grade index widened 3 bps on Friday to a spread of 111 bps.

Meanwhile, the new four-tranche issuance from eBay did "pretty well" in Friday's trading, a source commented.

Commonwealth upsizes

Commonwealth REIT priced a $175 million issue of 5.75% $25-par 30-year senior notes (Baa2/BBB-/), according to an FWP filed with the Securities and Exchange Commission.

"They're really pushing prices," a trader said.

The issue priced after the close, coming upsized but in line with price talk. However, ahead of pricing, chatter was that the deal was not all that attractive.

Traders reported seeing no markets for the new issue. That should come as little surprise, as some were already deeming the deal a dud ahead of pricing.

In an article posted on Seeking Alpha on Friday, Michael Terry, a consultant with Rubicon Associates LLC, said that Commonwealth's new bond deal was not attractive, pointing to the fact that the company's cash flow from operations was declining.

"If it is declining when it should be turning around and increasing, there is an issue," he wrote. "I see no catalyst which will turn this trend around in the near-term and therefore, no reason to invest as the yield indeed seems like the cheese in the mousetrap."

There is a $26.25 million over-allotment option.

The company intends to list the notes on the New York Stock Exchange.

Bank of America Merrill Lynch, Citigroup Global Markets Inc., UBS Securities LLC and Wells Fargo Securities LLC were bookrunners.

Proceeds will be used to repay outstanding amounts under a revolving credit facility, and for general corporate purposes, which may include future acquisitions.

After paying down the credit facility, the company intends to use the available borrowings to redeem some or all of its outstanding 7.125% series C cumulative redeemable preferreds.

Commonwealth is a Newton, Mass.-based real estate investment trust.

eBay firms

eBay recent $3 billion deal of senior notes (A2/A/A) firmed on Friday, a source said.

A $250 million tranche of 0.7% three-year notes traded at 33 bps bid, 32 bps offered following Thursday's pricing of Treasuries plus 40 bps.

The $1 billion of 1.35% five-year notes traded 9 bps tighter at 66 bps bid, 62 bps offered.

The notes sold at a spread of 75 bps over Treasuries.

Additionally, a $1 billion tranche of 2.6% 10-year notes were seen at 103 bps offered.

The tranche priced at 110 bps over Treasuries.

The $750 million of 4% 30-year bonds were seen at 140 bps offered after pricing at a spread of Treasuries plus 145 bps.

The global commerce and payments platform is based in San Jose, Calif.

Stephanie N. Rotondo contributed to this review

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