Grim market halts issuance; Walgreen pleased with issue reception; financials weak

By Andrea Heisinger and Paul Deckelman

Omaha, July 15 - There was little in the way of new issues to speak of Tuesday in the wake of a tumultuous beginning to the week.

As more news came out regarding the economy and bailout of mortgage companies Freddie Mac and Fannie Mae, issuers held off on coming into the market after the window that three issuers took advantage of Monday closed.

"It was definitely a quiet day out there," a source said. "We didn't see issuance from anyone, which wasn't really surprising given the situation."

In the investment-grade secondary market Tuesday, advancing issues trailed decliners by about a seven-to-six ratio, while overall market activity, reflected in dollar volumes, rose about 17% from Monday's pace.

Spreads in general were seen widening, in line with lower Treasury yields; for instance, the yield on the benchmark 10-year issue tightened by 3 basis points to 3.82%.

Walgreen calls timing 'straightforward'

One of Monday's issuers, Walgreen Co., was pleased with how its issue went.

The company issued $1.3 billion of 4.875% five-year unsecured notes at Treasuries plus 175 bps.

The issue was well oversubscribed, a source close to the deal said, adding that books came in at more than $2 billion.

"It went very well and we were very happy with it," said Michael Polzin, Walgreen's spokesperson.

"We were happy to see the level of interest."

The issue was announced Monday morning while the market was up on the Fannie and Freddie news.

"Market conditions were good, so we decided to go ahead of the issue," Polzin said about why the company issued when it did.

"It was pretty straightforward."

'Difficult environment'

One market source said he didn't price anything Tuesday, and didn't think anyone else did either.

"It's a weak market out there, and a difficult environment to issue anything in," he said. "It's going to take some significant catalyst to get issuance going again."

Issuance for the last three or four months has been solid enough that most companies wanting to issue have done so, a source said.

Also, many financial names will not issue in the midst of earnings announcements.

"It's not a depression yet," a source said. "It's a matter of those who wanted to issue already did. It would take a pretty good name like Johnson & Johnson to issue right now. I could see that happening."

There aren't any issues planned for the rest of the week, sources said, and most companies are taking the market day to day and only deciding to issue based on the morning's market opens.

"It was pretty grim out there today and I think this is going to continue for the foreseeable future," a source said.

Walgreen edges tighter

A trader saw the new Walgreen Co. 4.875% notes due 2013 trading at a spread versus comparable Treasury issues of 174 bps bid, 172 bps offered, versus the 175 bps level at which the Number-One U.S. drugstore-chain operator priced $1.3 billion of those bonds on Monday.

Another trader said the pricing of such a large-sized deal as Walgreen and the way the bonds just hung in around the issue price "was pretty impressive in this market."

The first trader also saw the Entergy Arkansas Inc. 5.40% first mortgage bonds due 2013 at 221 bps bid, slightly tighter than 223 bps at which the utility operator priced $300 million of the bonds on Monday. He lauded the Entergy bonds as "a good deal, a good value, and probably well placed."

However, the trader characterized Pacificorp's new two-tranche issue, which priced on Monday as "a pig," and further said that it was "not a healthy deal."

He quoted its $500 million of 5.65% notes due 2018 at a very wide 190 bps bid, 177 bps offered - a level which he said "means absolutely nothing" because the deal came at 180 bps over.

As for the $300 million of 6.35% bonds due 2038, which priced Monday at 192 bps, he saw them offered at that same 192 bps level, with "no bid."

Financials weak

The trader said that the focus of the day was mostly on the financial issues, which were continuing to reel under the latest assault of news developments, including Oppenheimer analyst Meredith Whitney delivering bearish comments about the banking sector in general and Wachovia Corp. in particular.

Citigroup's chief financial officer Gary Crittenden was quoted by The New York Times as having said that it may take two to three years for the bank's returns to "significantly" improve. Lehman Brothers Holdings was reported looking into ways to privatize itself.

With all of that going on, the trader said, "it doesn't make a lot of people go and buy and sell stuff right now. It's a continuation from [Monday]."

The trader added that "business has been good - but difficult - it's not as easy to trade as it was."

A trader said that credit-default swap prices for major banks was anywhere from 5 bps to 20 bps wider, except for Wachovia, whose debt-protection costs ballooned out by 45 bps to 350 bps bid, 370bps offered, while Washington Mutual was 70 bps wider at 780 bps bid, 815 bps offered.

The trader saw major brokerage-house debt-protection also out by 5 bps to 20 bps, with Citi's CDS cost 15 bps wider at 165 bps bid, 175 bps offered

Back in the cash-bond market, Lehman's 5.875% notes due 2017 were seen having widened nearly 20 bps to around 400 bps over.

However, Citigroup's 5 5/8% notes due 2012 managed to tighten, despite CFO Gary Crittenden's somber prediction. The bonds were seen in by 10 bps to the 340 bps level.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.