Morgan Stanley, Hasbro, CBS, Bank of America price; Dow Chemical bonds tank, financials gain

By Andrea Heisinger

New York, May 8 - New deal volume in the investment-grade bond market saw no signs of waning on Friday with sales from Morgan Stanley, Hasbro, Inc., CBS Corp. and Bank of America Corp.

The Morgan Stanley and Bank of America deals were done without the guarantee of the Federal Deposit Insurance Corp. and priced in response to the bank stress test results and government directive that they need capital.

Terms were released Friday for two deals priced late Thursday from Dow Chemical Co. and U.S. Bancorp.

The Dow Chemical bonds did not fare well in the secondary, with all three tranches widening sharply. Most of Friday's new deals from non-financial names moved little in trading, a secondary source said, while both financial issues were nicely tighter.

Spreads were generally wider by late Friday as Treasury yields tightened from the previous day's levels. The 30-year bond came in 2 basis points to yield 4.27%, while the 10-year note was 5 bps better at a 3.28% yield.

Morgan Stanley sells non-FDIC bonds

In an effort to raise capital, Morgan Stanley priced $4 billion of senior notes in two tranches early Friday. The deal had been announced Thursday after the government announced results of the bank stress tests and told some names they needed to raise money.

Morgan Stanley chose to do this by selling both common stock and bonds.

The size of the bond deal was originally about $3 billion, according to a press release, but was increased.

The $2 billion of 6% five-year notes priced at Treasuries plus 390 bps, while the $2 billion of 7.3% 10-year notes sold at 400 bps over Treasuries.

Morgan Stanley & Co. Inc. ran the books for the New York-based financial services company's bonds.

B of A prices $3 billion

Bank of America joined Morgan Stanley Friday in a quest to raise capital at the urging of the government. The bank reportedly showed a bigger deficit in capital, to the tune of $34 billion.

The Charlotte, N.C., financial services company sold $3 billion of 7.375% five-year notes at Treasuries plus 537.5 bps.

Banc of America Securities LLC was the bookrunner.

CBS offers two tranches

Mass media company CBS priced $750 million in five- and 10-year notes.

The $400 million of 8.2% five-year notes priced to yield 8.5%, or Treasuries plus 635.5 bps.

A $350 million tranche of 8.875% 10-year notes priced to yield 9.25%, or Treasuries plus 596.2 bps.

The notes priced to the yield, an informed source said.

Banc of America Securities, Citigroup Global Markets Inc., J.P. Morgan Securities and UBS Investment Bank ran the books.

The New York City-based company plans to use proceeds to fund a pending offer to purchase outstanding notes due 2010, among other purposes.

Hasbro sells upsized deal

A sale of senior notes by Hasbro was increased in size slightly, a market source said.

The $425 million of 6.125% five-year senior notes were originally $400 million, he said. They priced at 400 bps over Treasuries.

Up to $300 million of the proceeds are going to pay the purchase price for a 50% interest in a joint venture with Discovery and up to $15 million to fund the venture's future cash flow needs.

The Pawtucket, R.I., game and toy company tapped Banc of America and RBS Securities Inc. as bookrunners.

Deal flow continues

There was no break for the investment-grade primary Friday as new issues kept coming into the market. The trend is expected to continue in the coming week as financial names try to raise capital and industrials tap the market.

"I don't see it stopping," a source said. "I think it will be just as busy."

The week saw about $34 billion in offerings, mostly due to several multi-billion-dollar deals coming mostly from financials.

When asked whether the market needs a breather to absorb the volume, a source said "no."

"We were busy a lot longer before," he said. "I think we can take more."

Morgan Stanley tranches better

The two tranches of the new Morgan Stanley bonds were comfortably tighter late Friday, a few hours after pricing, a trader said.

The 6% due 2014 priced at Treasuries plus 390 bps and was quoted at 378 bps bid, 376 bps offered.

The 7.3% due 2019 was also quoted at 378 bps bid, 373 bps offered but was priced at 400 bps over Treasuries.

B of A bonds tighten

Bank of America's new issue of 7.375% bonds due 2014 was significantly tighter soon after pricing, a trader said.

They priced at 537.5 bps over Treasuries and were in 40 bps or better to 500 bps bid, 490 bps offered.

Hasbro bonds in 20 bps

The new 6.125% bond due 2014 from Hasbro was about 20 bps tighter in the secondary, a trader said. The bonds were trading at 380 bps bid, after selling at 400 bps over Treasuries.

No trading action was seen on the new tranches of notes from CBS, he said.

Dow tranches widen sharply

A day after selling, the three tranches of the $6 billion Dow Chemical offering were wider by as much as 30 bps, a trader said late Friday.

This was because they were "priced too aggressively," he said.

The 7.6% notes due 2014 were quoted at 560 bps bid, 555 bps offered, with a price of 550 bps over Treasuries.

The 8.55% notes due 2019 fared the worst, widening to 555 bps bid, 550 bps offered from the 525 bps over Treasuries price.

And the 9.4% bond due 2039 was at 530 bps bid, 515 bps offered, he said. They were priced at 512.5 bps over Treasuries.

Kinder Morgan deal mixed

The two tranches price Thursday by Kinder Morgan Energy Partners were mixed in trading late Friday, a trader said, with one unchanged and the other widening.

This was no surprise, as they didn't fare well after entering the secondary Thursday.

The 5.625% bond due 2015 was sold at Treasuries plus 350 bps and didn't move much at 350 bps bid, 346 bps offered.

The 6.85% bond due 2020 was at a wide range, with a 375 bps bid and 358 bps offer. They priced at 362.5 bps over Treasuries.

Corning 10 year mildly tighter

Corning Inc.'s 6.625% bond due 2019 sold Thursday was only slightly better in trading late Friday, a secondary source said.

The bond sold at 337.5 bps and was quoted at 335 bps bid, 325 bps offered.

The 7% bond due 2024 that made up the rest of the deal was not seen trading, the source said, likely because "it was only $100 million."

Financials, recent sales top trading

A bond from JPMorgan Chase & Co. was seen trading at the highest volume Friday afternoon, a trader said.

The 6.3% due 2019, done without the backing of the FDIC, was the most-traded bond for the session.

A bond from Xerox Corp. priced Wednesday was popular as well, coming in behind the JPMorgan issue.

And a 6.875% note due 2018 from Merrill Lynch & Co. Inc. was seen trading well.

Bank, broker CDS solidly tighter

Credit-default swaps for bank and brokers were tighter, although over a wide range, a trader said late Friday.

The CDS levels for large banks were 5 to 50 bps tighter, the trader said. Citigroup Inc. was at the far end of that range, sitting 50 bps better at 340 bps bid, 355 bps offered.

Brokerage debt-protection costs were between 5 and 25 bps tighter. Merrill Lynch was 25 bps tighter, the trader said.

Citi, other financials move big

On a day where two big financial names sold bonds without government backing, a bond from Citigroup had a huge move for the better.

It also came a day after results of the government's bank stress tests were given.

Citigroup's 4.875% bond due 2015 was a whopping 180 bps tighter than the previous week.

A bond from Morgan Stanley was also significantly improved, with the 4.75% bond due 2014 coming in nearly 100 bps.

Some financial names were doing worse than a week ago. A 5.35% bond due 2012 from Bear Stearns was about 40 bps wider, and a 5.25% due 2012 from General Electric Capital Corp. was out more than 30 bps.

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