Kraft, British Telecom, Harley-Davidson, Regions, U.S. Steel price issues as market stays hot

By Andrea Heisinger and Paul Deckelman

Omaha, Dec. 5 - The steady stream of new issues continued Wednesday with Kraft Foods Inc., British Telecommunications plc, Harley-Davidson Funding Corp., Regions Financial Corp. and United States Steel Corp. pricing.

"The market continues to be hot," a market source said.

The source commented that although many are coming to the market, they are paying the price for doing so with high new issue premiums.

Kraft priced $3 billion of notes in two tranches.

The $2 billion tranche of 6.125% 10-year notes priced at 99.515 to yield 6.188% at a spread of Treasuries plus 225 basis points.

The $1 billion tranche of 6.875% 30-year notes priced at 99.351 to yield 6.925% at a spread of Treasuries plus 250 bps.

Bookrunners for the issue were Credit Suisse Securities LLC, Goldman Sachs & Co., HSBC Securities, J.P. Morgan Securities Inc. and UBS Investment Bank.

One market source said the issue likely had about a 40 bps new issue premium which is about on par with what most issuers have been paying.

"I think we're seeing a 30 bps minimum for good quality issuers," the source said.

British Telecom sells $1.2 billion

British Telecom priced $1.2 billion of senior notes in two tranches, both at the tight end of talk.

The $600 million tranche of 5.15% five-year notes priced at 99.79 to yield 5.196% at a spread of Treasuries plus 190 bps.

The $600 million tranche of 5.95% 10-year notes priced at 99.736 to yield 5.984% at a spread of Treasuries plus 205 bps.

Both issues priced at the tight end of price talk which was 190 to 195 bps for the five-year tranche and 205 to 210 bps for the 10-year notes.

Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and RBS Greenwich Capital were bookrunners.

Harley-Davidson comes wide

Harley-Davidson priced a downsized $400 million of 5.25% five-year medium-term notes at 99.886 to yield 5.276% at a spread of 200 bps. That was wide of talk and substantially more than where the deal had first been marketed.

The Rule 144A issue had problems after it was launched Tuesday.

Market sources said there was difficulty selling the notes to investors. The spread widened from price talk that started at 165 and landed at 190 to 195 bps, and it was downsized from $500 million.

"That issue has a little hair on it," a source said. "People who buy motorcycles are the same people who are defaulting on home loans."

A source estimated the company paid a 50 bps new issue premium.

Bookrunners were J.P. Morgan, Citigroup and BNP Paribas Securities Corp.

Regions Financial priced $300 million in 7.375% 30-year notes at 99.7 to yield 7.4% at a spread of Treasuries plus 300 bps.

Bookrunners were Morgan Keegan & Co, Inc., Credit Suisse and UBS.

An upsized split-rated issue of $500 million in 7% 10-year senior notes from U.S. Steel priced at 99.087 to yield 7.125% at a spread of 318 bps.

The issue was originally $400 million.

"I would figure there would mostly be interest on this from the high-grade side," a market source said.

Bookrunners were Banc of America Securities LLC, J.P. Morgan and Scotia Capital.

More deals on the way

Vulcan Materials Co. announced an issue of notes in five, 10 and 30-year tranches via Banc of America, Goldman Sachs & Co., J.P. Morgan and Wachovia Capital Securities LLC.

The issue will likely price this week, a source close to the deal said.

Subsidiaries of MetLife, Inc. will price up to $5.5 billion of fixed- to floating-rate exchangeable securities in December, according to a form 8-K Securities and Exchange Commission filing.

The steady volume will likely continue for the rest of the week, sources said.

"There are a few guys that could come by the end of the week," a market source said.

"There probably won't be anything gigantic, but a couple of small trades."

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