Week ends with more than $11 billion issuance; coming week seen dominated by non-financial names

By Andrea Heisinger and Paul Deckelman

Omaha, June 13 - A modest week of more than $11 billion in new issues ended Friday with little in the way of issuers adding to that amount.

One source said he had seen "nothing cross the screens, but it doesn't mean nothing got done."

"It was a quiet summer Friday, and people were reluctant to get anything done," he said.

In the investment-grade secondary market Friday, advancing issues trailed decliners by a six-to-five ratio, while overall market activity, reflected in dollar volumes, fell about 30% from Thursday's pace.

Spreads in general were seen tighter, as Treasury yields moved higher; the yield on the benchmark 10-year note, for instance, rose by 4 basis points to 4.25%.

Week of utilities, financials

Issuance for the week was heavy on utility and financial names. Few of them topped the $1 billion mark.

Those that did were SLM Corp., Florida Power Corp. d/b/a Progress Energy Florida Inc. and Dominion Resources, Inc.

Smaller issues came from names including Sempra Energy, FPL Group Capital, Inc., Prudential Financial Inc. and HSBC Bank USA.

Bad news about the economy, oil prices and Lehman Brothers' $2.8 billion loss announcement prompted uneven conditions that left most issuers hesitant to enter the market.

Before the week began, there were predictions of a jump in issuance after several weeks in which activity has been stagnant in the wake of record months.

"Most issuers are resigned to taking a fresh look next week, maybe Tuesday or Wednesday," a source said.

It's unlikely many will come into the market Monday, instead using the day to feel out the market's stability before jumping in Tuesday.

Some broker names will release earnings in the coming week, and some issuers may hold off until after those announcements are made, a source said.

"People will be watching Monday, and it's not likely most are going to want to jump into the market between Lehman and other earnings," he said.

Any issues that do get done in the early part of the week are not going to be benchmark-size issues, he added.

Issuers are likely to be similar in variety to those of this week, meaning mostly non-financial names.

"Non-financials are going to kind of dictate the calendar," a source said. "The flows of the next week or two will mostly be the same."

Sallie Mae trades down, but spread tightens

A trader saw the new Sallie Mae 8.45% notes due 2018 trading below issue on a dollar-price basis, but actually tightening up on spread because of the wider movement of Treasuries.

The education loan entity's $2.5 billion of bonds had priced at 98.03 on Thursday, so the issue would yield 8.75%, for new-issue spread of 465 basis points over comparable Treasury paper. During Friday's session, the bonds at one point traded as high as 98.5 bid, or 449 bps over. By the end of the day, the trader said, the price had come down from that peak and had moved below issue, with the last round-lot deal at 97.75. However, because Treasury yields rose Friday, causing bond spreads to narrow, the Sallie Mae offering went out quoted at 456 bps over.

New utility deals tighten up

Among other recently priced issues, another trader said that Union Electric Co.'s $450 million of new 6.70% first mortgage bonds due 2019 were trading at 251 bps bid, 246 bps offered, slightly wider than the 250 bid/248 bps offered level seen late in the day on Thursday. Those bonds had priced earlier that session at 253 bps over Treasuries.

He also saw Dominion Resources Inc.'s $500 million of 6.40% notes due 2018, which priced Thursday at 220 bps over, and which then came in a little to 216 bps bid. 211 bps offered, tighten a little further Friday to 213 bps bid, 211 bps offered. The company's $400 million of 7% bonds due 2038 were at 224 bps bid, 221 bps offered, in from their spread at Thursday's pricing of 230 bps over and the 227 bps bid level at which they had initially traded later on that session.

The trader saw Duke Energy Corp.'s $250 million of 6.25% notes due 2018 at 215 bps bid, 210 bps offered. He did not see the company's $250 million of 5.65% notes due 2013. Both tranches had priced at 220 bps over Treasuries on Wednesday.

In another utility deal that priced on Wednesday, the trader saw Florida Power Corp.'s $500 million of 5.65% notes due 2018 trading at 150 bps bid, 148 bps offered, well in from the 163 bps level at which they had priced. He also saw its $1 billion of 6.40% bonds due 2038, which had priced at 175 bps over, as having come in to 169 bps bid, 167 bps offered.

Bud tightens from wides

Among established issues, the trader said that most of the activity in Anheuser Busch Cos. Inc.'s bonds took place on Thursday, as the St. Louis-based brewer's paper widened across the board on the news that Belgian-Brazilian beer giant InBev had formally made a $46 billion offer for the iconic American producer of Budweiser and other famous brands. However, on Friday, the paper came in a little from those wides, although it remained out from the levels it had before the InBev announcement was made.

He saw Bud's 2037 bonds trading at 195 bps bid, 190 bps offered - tighter than the 205 bps bid, 185 bps offered level out to which those bonds had ballooned on Thursday. But they remained out from the 170 bps bid, 160 bps offered level at which they were trading at mid-week, before the news of the InBev offer.

© 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.