United Technologies' new notes seen tighter; United took advantage of low rates, analyst says

By Sheri Kasprzak & Aleesia Forni

New York, May 25 - Both primary and secondary action dried up on Friday ahead of the Memorial Day weekend as market insiders took off early to enjoy the holiday, sources reported.

Still, the market was buzzing about a massive offering from United Technologies Corp. The aerospace and building parts manufacturer came to market Thursday with $9.8 billion of notes in six tranches including four tranches of fixed-rate notes and two tranches of floating-rate notes.

"The six-part offering ranks fifth on the all-time deal list in terms of size, falling below the likes of pharmas Pfizer and Roche, which both offered $13.5 billion back in 2009," said Jody Lurie, corporate credit analyst with Janney Montgomery Scott LLC.

"Given the recent slowdown in new issues, UTX managed to take advantage of low rates and the robust cash balances investors are looking to put to work. The much-anticipated deal does not affect UTX's credit ratings, as the company has been meeting regularly with the agencies to ensure it stays within required ranges. That said, the company will need to devote cash flows toward debt repayment after the transaction closes this summer."

On a broader note, Lurie said acquisition offerings, like the United Technologies offering, the proceeds of which will be used to partially finance its acquisition of Goodrich Corp., will likely drive new issuance as the summer starts. New debt is expected from Eastman Chemical Co.

"The chemical company, which received European antitrust approval yesterday [Thursday], seeks to fund its $4.5 billion purchase of Solutia this quarter," Lurie noted.

United fixed-rate notes price

On Thursday, United Technologies priced $8.3 billion of fixed-rate notes, including $1 billion of 1.2% three-year notes, $1.5 billion of 1.8% five-year notes, $2.3 billion of 3.1% 10-year notes and $3.5 billion of 4.5% 30-year notes.

The three-year notes priced at a spread of Treasuries plus 80 basis points. The notes were priced at 99.944 to yield 1.219%.

The five-year notes priced at a spread of Treasuries plus 105 bps. The notes were priced at 99.914 to yield 1.818%.

The 10-year notes priced at a spread of Treasuries plus 135 bps. The notes were priced at 99.923 to yield 3.109%.

The 30-year notes priced at a spread of Treasuries plus 173 bps. The notes were priced at 98.767 to yield 4.576%.

Fixed-rate notes tighten

The fixed-rate notes tightened in the secondary market Friday, traders reported.

The three-year notes traded at 58 bps bid on Friday. The $1 billion of 1.2% notes priced at a spread of Treasuries plus 80 bps.

A $1.5 billion tranche of 1.8% five-year notes traded at 84 bps bid. They priced Thursday at Treasuries plus 105 bps.

The 10-year notes traded at 116 bps bid, the source continued. The $2.3 billion of 3.1% notes priced at Treasuries plus 135 bps.

The 30-year notes traded at 150 bps bid during the session. The company priced $3.5 billion of the 4.5% notes at a spread of Treasuries plus 173 bps.

Floaters sold in two tranches

On Thursday, the company also sold floating-rate notes, including $1 billion of 18-month notes and $500 million of three-year notes.

The 18-month notes are due Dec. 2, 2013 and bear interest at Libor plus 27 bps.

The three-year notes bear interest at Libor plus 50 bps.

The notes (A2/A/A) were sold through joint bookrunners Bank of America Merrill Lynch, HSBC Securities (USA) Inc., J.P. Morgan Securities LLC, BNP Paribas Securities Corp., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. and RBS Securities Inc.

United Technologies is based in Hartford, Conn.

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