Deutsche Bank surprises with $7 billion issue on weak day; coming week's volume uncertain; Cisco sinks

By Andrea Heisinger and Paul Deckelman

Omaha, Jan. 4 - A sizable issue from Deutsche Bank AG closed out the week Friday, with some traders surprised at its timing.

The investment bank priced $7 billion in extendible floating-rate notes in two tranches, with Deutsche Bank Securities Inc. acting as bookrunner.

In the investment-grade secondary market Friday, advancing issues led decliners by a margin of nearly three-to-two. Overall market activity, reflected in dollar volume, was down about 13% from Thursday's levels, mirroring market expectations that not much was going to happen before Monday, when things are expected to be back in full swing.

One of the larger movers was Cicso Systems Inc., reflecting a general downturn in the shares of bonds of high-tech companies after JP Morgan Chase downgraded semiconductor giant Intel Corp.'s shares.

Among the financial names, General Electric Capital and Bear Stearns were among the gainers on the day, while Bank of America was among the decliners.

Credit-default swap spreads on major bank and brokerage names were seen having widened out by a few points, in line with a generally easier tone in the market.

Deutsche step up

Back in the primary, in Deutsche's new deal, each tranche was $3.5 billion priced at par with a coupon of three-month Libor plus 21 basis points. The coupon increases 2 bps after the first year and each year after until the final year when it increases by 1 bp.

One tranche has an initial maturity of Jan. 21, 2009, with a final maturity of Dec. 21, 2012. The second tranche has an initial maturity of Feb. 4, 2009 and final maturity of Jan. 4, 2013.

A market source commented that the issue was a bit of a surprise on a day with less than ideal conditions.

"Credit was pretty ugly today," he said. "The jobs report really has everyone looking at credit risks. Indices were looking about as bad as we've seen."

"It was kind of interesting that they [Deutsche Bank] decided to come today. They're not concerned about putting their money to work, obviously."

The size of the issue was surprising, with the investment bank taking "a hefty chunk," out of the market, a source said.

"They must have had a market for it," he said.

This issue of extendibles comes on the heels of Thursday's $2.5 billion of the notes from the Commonwealth Bank of Australia in a Rule 144A offering.

That bank priced its deal at Libor plus 20 bps, with steps up to Libor plus 27 bps.

One source said he was not surprised to see these two issues price.

"I expected some financials to come to the market," he said. "It's interesting because the extendible markets were essentially shut down after the sub-prime crisis and we haven't seen many since then."

He said the Commonwealth Bank of Australia issue would have priced at Libor flat in prime conditions, and that the company "had to pay up" to get it done now.

A senior high-yield syndicate official said Friday that high-grade issuers could expect to pay between 25 to 35 bps in new issue premiums.

Questions over coming week

After seeing an 8 bps rally in the 10-year Treasury Friday morning, a source said it would be compelling for opportunistic issuers to come to the market beginning Monday.

"There's a whole load of backlog right now," he said. "Most places are probably lining some people up."

A sell-side source said he was telling potential issuers to go sooner rather than later to avoid spreads that could potentially go wider.

At mid-week, traders were saying Monday and Tuesday would bring out many issuers, especially financials. After Friday's market conditions deteriorated, so did the outlook for the coming week.

"I don't think we'll see as many now, with how weakly things went out [Friday]," a market source said. "Someone has to be the guinea pig, but I don't think we'll see a lot now. We'll see."

Sources from two high-volume bookrunners said they each had at least three to four issues waiting in the wings, but when they priced would depend on how conditions look Monday.

One investment-grade issuer announced a road show beginning Monday.

Usinas Siderurgicas de Minas Gerais SA is talking a $400 million issue of 10-year bullet bonds (BBB-/BBB-) via J.P. Morgan Securities Inc. and UBS Investment Bank.

It will be a Rule 144A/Regulation S issue.

Cisco bonds part of tech tumble

Among specific secondary issues, Cisco Systems' 5½% notes due 2016 were seen having widened out about 15 basis points to stand at 120 bps over comparable Treasuries.

The San Jose, Calif.-based producer of internet protocol-based networking equipment's bonds fell - along with the bonds and shares of many other Silicon Valley companies - after JP Morgan Chase downgraded Intel's shares to "neutral" from "overweight" before, citing slowing orders for its semiconductors from personal-computer makers and other high-tech manufacturers.

Cisco's bonds were among the most actively traded high-grade issues on the day.

Financials seen mixed

Among the financial names, Friday was something of a mixed bag. While GE Capital's 4.875% notes due 2015 tightened nearly 20 bps to around the 80 bps level, and Bear's 5.35% paper due 2012 improved by about 10 bps to the 265 bps level, B of A's 6% bonds due 2036 were about 15 bps wider, around the 180 bps level.

Elsewhere among the financials, Merrill Lynch's 6.05% notes due 2012 were 19 bps wider at 228 bps, and its 6.40% notes due 2017 out 14 bps at 230 bps.

Goldman Sachs' 5.625% notes due 2017 tightened by 6 bps to 193 bps, but its 6.25% notes due 2017 were wider by about the same amount, at 166 bps.

CDS seen wider

A trader said that debt-protection costs for the bonds of major brokerages were about 5 bps to 10 bps wider on the session, with Bear at 182 bps bid, 192 bps offered, Lehman Brothers at 127 bps bid, 132 bps offered and Merrill at 135 bps bid, 1140 offered. Morgan Stanley's CDS costs rose by 5 bps to 102 bps bid, 107 bps offered.

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