Coca-Cola Enterprises prices delayed $1 billion issue, Fed cut not felt in primary; new deals tighten

By Andrea Heisinger and Paul Deckelman

New York, Oct. 29 - After a pricing delay, Coca-Cola Enterprises Inc. got its deal done early Wednesday ahead of the rate-cut announcement from the Federal Reserve.

The Fed's cut had little effect in the primary, sources said, other than the possibility of cementing plans by some issuers to come to the market this week.

In the investment-grade secondary market Wednesday, advancing issues led decliners by a better than five-to-four ratio. Overall market activity, reflected in dollar volumes, rose 2.5% from Tuesday's pace.

Spreads in general were seen a bit tighter, in line with slightly higher Treasury yields; for instance, the yield on the benchmark 10-year note rose by 2 basis points to 3.85%.

The new Coca-Cola Enterprises Inc. bonds were seen having firmed smartly shortly after their pricing.

Other recent new issues also seen continuing to move up included 3M Co. and National Rural Utilities Cooperative Finance Corp.

Coca-Cola Enterprises prices $1 billion

Coca-Cola Enterprises priced its $1 billion issue of notes due 2014 Wednesday morning after being delayed Tuesday.

The company was hit with a ratings outlook downgrade from stable to negative by Standard & Poor's, which caused the delay.

The 7.375% unsecured notes priced at 99.897 to yield 7.402% with a spread of Treasuries plus 468 basis points.

This was wider than the 462.5 bps it was launched at. It was a direct result of the S&P change in outlook, a source close to the deal confirmed.

Bookrunners were Banc of America Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities, and Deutsche Bank Securities.

Primary unchanged on Fed

The primary market did not see any noticeable change after the afternoon's announcement of a Federal Reserve rate cut of 50 bps, a source said.

This brought the Federal Funds rate to 1%, which is the lowest level since before 2001.

"I think it had less of an impact than in the past," a source said. "Things are still shaky."

It was a widely expected move on syndicate desks Tuesday.

What happens the rest of the week is still up in the air as a mid-day rally faded.

"I don't think anything has really changed," a source said. "We're not seeing a rush of new issuers into the market."

He noted with some surprise that Wednesday ended on a low note.

"Who knew we would end down today," he said, "especially with equities the way they were."

The Coca-Cola Enterprises issue was another in a recent trend of highly-rated companies pricing large, sometimes multi-tranche, deals.

It was, however, the only one that was delayed.

"I think that threw them for a loop, but it didn't price much wider than before [when it launched]," a source said. "It came pretty early today, so I'm guessing they wanted it in right off the bat."

The combination of the Coca-Cola deal and the Fed cut could mean a couple of issues the rest of the week, sources said.

"You just don't know anymore," a source said, adding that no one knows when company will decide to issue.

"It's on a daily basis, and you don't even know from the beginning to the end of the day how it will end."

New Coca-Cola Enterprises deal very frothy and fizzy

A trader saw the new Coca-Cola Enterprises 7.375% notes due 2014 having moved up to a price of 432 bps bid, 427 bps offered, well in from the 468 bps spread over comparable Treasuries at which the $1 billion of paper priced earlier in the session.

Given the choice of whether the tightening was a commentary on the perhaps more optimistic tone in the corporate bond markets or whether it just meant that the deal had been priced too cheaply to begin with, he chose the latter answer with no hesitation.

"Actually," he opined, "all of the [recent] new deals were probably priced too cheaply. If I were an issuer, I would be really p***ed off to see the way these deals price too cheaply and then in effect get repriced once they hit the secondary market."

3M deal continues rise

As an example of what he meant, he noted the fact that the new 3M bonds were trading at 240 bps bid, 225 bps offered. That represents further upside from the 250 bps bid, 240 bps offered level seen on Tuesday, and is well inside the 275 bps over level at which the Minnesota-based industrial conglomerate priced $800 million of the 4.50% notes due 2011 on Monday.

National Rural 'amazing'

The trader said that "maybe the most amazing" movement of all was in National Rural Utilities' new bonds.

He saw the 10.375% collateral trust bonds due 2018 at 540 bps bid, 530 bps offered. That's in from the 560 bps bid, 540 bps offered level at which the bonds traded on Tuesday, and well in from the 608.1 bps spread at which $1 billion of those bonds were priced last Thursday.

"Just amazing" how the bonds keep coming in, he said.

New Pepsi bonds still active

PepsiCo Inc.'s recently priced 7.90% notes due 2018 were once again among the most actively traded high-grade credits Wednesday, although they were somewhat wider than they were on Tuesday.

They were seen trading around at a 338 bps bid, 320 bps offered level, wider than the 315 bps offered level seen Tuesday, although they were still well up from the 420 bps bid level at which the Purchase, N.Y.-based soft-drink and snack foods giant priced $2 billion of the bonds on Oct. 21 as part of a two-part offering.

However, a market source saw the 6.95% notes due 2014 issued by Pepsi unit Bottling Group LLC as part of that deal having come in to 372 bps, in from 398 bps on Tuesday and well in from the 435 bps at which the bonds had initially priced as part of the two-part offering.

DaimlerChrysler bonds up

Apart from the new-deal offerings, DaimlerChrysler NA Holding Corp.'s 5 7/8% notes due 2011 were one of the biggest movers, on heavy trading of some $90 million. The bonds - which trade on a dollar-price basis rather than on spread - were quoted up 3.5 points to 79.

The automaker's Chrysler Financial unit said Wednesday it had been given the OK to access to the Federal Reserve's new facility allowing corporations to raise capital via commercial paper.

Target 'a little better'

A trader saw Target Corp.'s bonds "a little better," with its 2018 paper having firmed to 485 bps over and its 2038 bonds at 515 bps bid, 485 bps offered.

Activist hedge fund investor William Ackman, whose Pershing Square Capital Management holds about 10% of the discount retailer's shares, unveiled a plan to spin off the company's real estate holdings as a separate entity as a way to increase the value of the company and its shares.

Target received the plan coolly, saying that it has "serious concerns" about such a transaction.

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