Goldman, Lehman sell notes, Eaton Vance, ING set to price Thursday; financials up on Bear reports

By Andrea Heisinger and Paul Deckelman

Omaha, Sept. 26 - Investment banks and other financials were about the only new investment-grade issuers Wednesday.

Goldman Sachs Group Inc. sold $2.5 billion in 6.75% 30-year notes priced at 99.453 to yield 6.793% at a spread of Treasuries plus 190 basis points.

Lehman Brothers Holdings, Inc. sold $1.135 billion in extendible floating-rate senior notes. They have an initial maturity of 2008 but are extendible by holders in one year increments up to the final maturity of 2013.

The notes priced at par with a coupon of three-month Libor plus a spread increasing on successive annual reset dates.

An issue of up to $350 million in 10-year senior notes from Eaton Vance Corp. was announced and will likely price Thursday, an informed source said.

Bookrunners are Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc.

News that Bear Stearns is in talks to sell a stake to an outside investor - potential buyers include billionaire Warren Buffett's Berkshire Hathaway Inc. - lifted the brokerage's bonds and caused its debt-protection costs to fall sharply. Credit default swaps contracts for other brokerages, such as Lehman Brothers and Morgan Stanley also fell, and held steady on Merrill Lynch - even through Goldman Sachs lowered its earnings estimates for the latter. Goldman's new 30-year note issue, meantime, was seen having tightened smartly in its initial trading.

ING expected Thursday

Back in primary news, ING Groep NV will also likely price its issue of perpetual hybrid capital securities Thursday, a source said. Bookrunners are Citigroup Global Markets Inc., ING Financial Markets and Wachovia Capital Securities LLC.

The abundance of financials entering the market was due to a quiet and stable couple of days, a market source said.

"It was Goldman's time to enter the market," the source said. "I would expect Morgan Stanley will in the next couple of days, too. They're taking advantage of the stability."

Financials likely saw another incentive for issuing now.

"They're seeing that spreads are going to be wider down the road, so they might as well get in now," a market source said.

In trading Wednesday, the benchmark 10-year Treasury was relatively unchanged, adding to stable conditions, a source said.

Wednesday "felt pretty good," according to one market source who said this was despite the small amount of new issues.

"I think it will probably slow down the rest of the week," the source said.

With only two market days left in September, it's unlikely the month will hit the $90 billion mark of August, a record for that month.

"I think we're going to fall short, but that could all change if three or four financials come out of the woodwork," a source said.

New Goldman bonds tighten up

A trader saw the new Goldman 6.75% notes due 2037, which had priced at a spread of 190 basis points over Treasuries, having tightened in initial dealings later in the session to about the 181 bps level.

"They were probably quoting them 184/180, 183/180," he said.

He also saw Bear Stearns' existing bonds about 5 bps tighter, such as its 5.55% notes due 2017, which recently had been trading at around 175 bps over.

Goldman sees lower Merrill earnings

Merrill Lynch's bonds, on the other hand, were off a little, after Goldman lowered its earnings expectations.

Goldman analyst William Tanona sharply cut his third-quarter profit estimate to 15 cents per share from $1.95 per share previously, and also lowered his stock price target on the company to $94 from $108. Wall Street has been expecting a quarterly profit of about $1.80 per share.

Tanona is looking for as much as $4 billion in writedowns, primarily coming from Merrill's fixed-income division, which he projects will report an overall loss of $1.5 billion for the third quarter.

Despite that negative news, though, a trader saw the cost of protecting Merrill Lynch's debt against a possible default no more than what it had been on Tuesday, at 53/58 bps for five years, and saw CDS spreads on other brokerage names all having tightened, particularly Bear Stearns.

Bear stake sale talk buoys market

"The rumors about Bear looking to sell a stake," maybe to the savvy billionaire investor Buffett, to a Chinese bank or someone else, "overwhelmed any negatives" like Goldman's lowered expectations for Merrill Lynch, he said. "It was unbelievable," he added.

He saw the cost of a CDS contract linked to Bear Stearns debt declining to 77/82 bps Wednesday afternoon from 90/95 bps on Tuesday.

At another desk, a market source pegged that even lower, saying the debt-protection cost had declined by some 20 bps to around 70 bps.

The trader also saw the cost of a CDS contract linked to Lehman debt declining to 78/83 bps from 82/87 bps, while Morgan Stanley's tightened by 1 bps to 52/57 bps from 53/58 bps.

The New York Times reported that Bear Stearns is seriously looking to sell a 20% stake. Besides Buffett, the paper said other interested parties include Bank of America, Wachovia Corp. and several Chinese banks.

The investment bank has been hard-hit by the recent downturn in the subprime mortgage business, with two Bear-affiliated hedge funds running into serious trouble because of their exposure to mortgage-backed securities.

Overall, advancing issues led decliners by about a 7-to-6 ratio on Wednesday. Apart from the financials such as Lehman and Goldman, actively traded well-known names included International Business Machines Corp., and Kraft Foods. TXU Energy's bonds were seen particularly firmer.

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