By Gabrielle Coppola March 5 (Bloomberg) — Teco Energy Inc. , the parent of the electricity provider serving west-central Florida, leads issuers selling the most utility debt in six weeks as investors seek to curb risk by buying the bonds of regulated companies. Teco, which sold $550 million of 6- and 10-year notes through its Teco Finance Inc. unit, has the largest of five utility offerings totaling about $1.62 billion this week, according to data compiled by Bloomberg. Newark, New Jersey- based Public Service Electric & Gas Co. , the state’s largest utility, sold $300 million of 30-year bonds on March 2. Investors are buying utility bonds amid mixed signals on the strength of the U.S. economic recovery. While initial jobless claims fell last week, pointing to a strengthening labor market, pending sales of existing homes dropped in January. Debt from electric and gas companies represents a middle ground for investors looking to pick up yield while curbing risk, said Bill Larkin , a portfolio manager at Cabot Money Management. “The thing that’s attractive about utilities is that it’s regulated, in place,” said Larkin, who helps oversee $500 million for the firm in Salem, Massachusetts. “It’s the perfect business model for fixed-income investing.” Teco’s offering was its first in almost two years, Bloomberg data show. The utility sold $250 million of six-year, 4 percent notes at 180 basis points more than similar-maturity Treasuries, and $300 million of 10-year, 5.15 percent bonds at a 160 basis-point spread. Rick Morera, a spokesman for Tampa, Florida-based Teco Energy, didn’t return a call seeking comment. Credit Risk Elsewhere in credit markets, the Markit CDX North America Investment-Grade Index Series 13, which is linked to 125 companies and used to speculate on creditworthiness or to hedge against losses, increased 0.25 basis point to a mid-price of 88.75 basis points, according to Barclays Capital. The gauge typically increases as investor confidence deteriorates. In London, the Markit iTraxx Europe index of swaps on 125 companies with investment-grade ratings rose 1.75 point to 81 basis points, according to JPMorgan Chase & Co. The cost of protecting Asia-Pacific bonds from default fell today to the lowest in at least five weeks. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped 4.5 basis points to 102 basis points as of 8:20 a.m. in Hong Kong, the lowest since Jan. 25, according to Citigroup Inc. and CMA DataVision prices. Credit-swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point equals $1,000 a year on a contract protecting against default on $10 million of debt for five years. Greek Bonds Swaps contracts to protect against default on Greek government debt rose 12 basis points to 306.5 basis points yesterday, according to CMA. Greece sold 5 billion euros ($6.8 billion) of 10-year bonds after Prime Minister George Papandreou ’s promises to reduce Europe’s largest budget deficit by cutting wages and spending prompted protesters to occupy the Finance Ministry. The government priced the notes at 300 basis points more than the mid-swap rate, or a yield of 6.385 percent. That compares with 6.09 percent interest on Greece’s existing benchmark issue due July 2019, Bloomberg data show. European Central Bank President Jean-Claude Trichet phased out some of the emergency tools used to fight the financial crisis and said it would be inappropriate for the International Monetary Fund to give help to Greece. The ECB will tighten the terms of its three-month market operations next month by returning to the pre-crisis practice of offering the funds at a variable rate. In its main seven-day operations, the ECB will keep lending commercial banks as much money as they need at its benchmark rate for at least seven months. The ECB left that rate at a record low of 1 percent yesterday. TALF Deals In the loan market, Revlon Inc. , the cosmetics company controlled by Ronald Perelman , reworked the discount offered on an $800 million term loan, according to people familiar with the change. The debt, which now has a five-year maturity, will be sold at 98.25 cents on the dollar, the people said. The loan was originally marketed by the New York-based company as a seven-year obligation to be sold at a discount of 99 cents, one of the people said. The Federal Reserve received $4.1 billion, the most in six months, in loan requests from investors for the final round of its program to unlock the market for asset-backed securities. A total of $1.8 billion of requests for financing of student-loan securities accounted for the largest category of debt sought, the New York Fed said on its Web site. CIT Group Inc., SLM Corp. , Ford Motor Co. and Chrysler Financial Corp. were among borrowers selling debt eligible for the Fed’s Term Asset-Backed Securities Loan Facility. Pending Home Sales Fewer Americans than expected signed contracts to purchase previously owned homes in January, indicating the extension of a tax credit is doing little to lure buyers. The index of purchase agreements, or pending home sales , dropped 7.6 percent after a revised 0.8 percent increase in December, the National Association of Realtors said in Washington. Claims for U.S. jobless benefits dropped last week from a three-month high. Initial jobless applications fell by 29,000 to 469,000 in the week ended Feb. 27, in line with the median forecast of economists surveyed by Bloomberg News. This week’s utility offerings are the most since the period ended Jan. 22, when Electricite de France led $2.7 billion of issuance, Bloomberg data show. Utility Bonds Lag U.S. utility bonds returned 0.21 percent in February, lagging the 0.38 return on all investment-grade debt, according to Bank of America Merrill Lynch data. In January, each returned about 2 percent. Utility debt has lost 0.14 percent this month. “The reason it underperformed is because of all the clean air rules,” Cabot’s Larkin said. “Greenhouse gas emission costs, carbon trading, could impact them, but they’re still in a situation where they’re going to be in business,” he said. Public Service Electric & Gas ’s 5.5 percent senior secured bonds due in 2040 rose 1.02 cent to 100.544 cents on the dollar since the sale, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Puget Sound Energy Inc., Southwestern Electric Power and Western Mass Electric Co. all sold debt on March 3. Utilities are attractive because demand for corporate credit has lowered the yields paid by other issuers that don’t operate in the stability of a regulated marketplace, said Jason Brady , a portfolio manager overseeing $8 billion in fixed-income assets at Santa Fe, New Mexico-based Thornburg Investment Management Inc. Time Warner “It’s certainly as attractive from a business standpoint as a more cyclical but very strong balance sheet company,” Brady said. Southwestern Electric Power’s 6.2 percent debt due in 30 years priced to yield 160 basis points more than benchmarks, Bloomberg data show. The bonds are expected to be rated Baa3 by Moody’s Investors Service, its lowest level of investment grade, and one step higher at BBB by Standard & Poor’s. New York-based Time Warner Inc., returning to credit markets after a three-year hiatus, also paid a 6.2 percent coupon on 30-year bonds that priced to yield 162 basis points more than benchmarks on March 3. The debt is rated Baa2 by Moody’s and BBB by S&P. “With Time Warner at 162 and Southwestern Electric Power at 160 in 30 years, I’ll take Southwestern Power all day long,” Brady said. To contact the reporter on this story: Gabrielle Coppola in New York at gcoppola@bloomberg.net
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