Week ends on soft tone, more than $21 billion issues; new Verizon, Sysco deals drop gains

By Andrea Heisinger and Paul Deckelman

Omaha, Feb. 8 - Unlike the last couple of Fridays, sources said there was little in the way of new issues to end this past week. The quiet session wrapped a week that saw more than $21 billion of new deals.

In the investment-grade secondary market Friday, declining issues led advancers by about a seven-to-six ratio, while overall market activity, reflected in dollar volumes, fell nearly 18% from Thursday's levels.

Traders saw the new deals which had priced Thursday for Verizon Communications Inc. and Sysco Corp. mostly give up the early gains which were notched Thursday in initial aftermarket trading.

However, other recently priced issues, such as those of United Parcel Service Inc. and UnitedHealth Group Inc., continued to hold their own.

Credit-default swap spreads for beleaguered bond insurers MBIA Inc. and Ambac Financial Group Inc. were seen a little tighter on the day, a sign of increased investor confidence in the troubled monoline sector, on speculation that a rescue plan aimed at providing such companies more capital could emerge this coming week. MBIA's recently issued surplus notes were meantime also seen better after the company augmented its capital position with a $1 billion stock sale.

Southern Union remarkets

Southern Union Co. remarketed an issue of senior notes due 2010. They have a coupon of 6.089% and price of 100.25 to yield 5.954% with a spread of Treasuries plus 400 basis points.

The notes were originally issued in February 2005, and the company will not receive any proceeds directly from remarketing the notes.

Remarketing agent was Lehman Brothers Inc.

Thursday's issue from Sysco Corp. went well, according to those who handled the $750 million of notes in two tranches

The company spokesperson also said Friday that the issue went well.

"We were very pleased with the offering," said Toni Spigelmyer of Sysco.

"We are not taking on new debt, since we will use the proceeds to fix some of our floating debt on commercial paper at five- and 10-year rates of 4.20% and 5.25% respectively. The offering was oversubscribed by more than three times and we had a great day yesterday."

The week saw a mix of industrial and financial names despite sometimes volatile market conditions.

Sources said issuers and investors have come to terms with the price to put something in the market now.

Among the larger issuers of the week were UnitedHealth Group, Wachovia Corp., Verizon Communications and Lehman Brothers Holdings Inc. and KfW.

Both UnitedHealth and Verizon were oversubscribed, sources close to the deals said.

Issuers under the $1 billion mark included Caterpillar Financial Services Corp., Kinder Morgan Energy Partners LP, PNC Capital Trust E, Sysco, BritishSky Broadcasting, ACE INA Holdings Inc., Ecolab Inc., General Electric Capital Corp. and Toyota Motor Credit Corp.

The total issuance for the week was more than $21 billion.

One market source said he thought Friday would have had some issuers.

"If you would have asked me yesterday, I would have said there would have been at least one or two," he said. "The trend on the last couple of Fridays has been at least two issues."

Market conditions to begin the day may have turned some potential issuers away.

"The tone was definitely weak this morning," a source said. "The CDS was about 5 bps wider and there's not much volume in secondary cash trading."

A source repeated what has become the recent way of thinking in investment-grade: if the market's bad it doesn't mean no one will issue.

"The tone is soft, but as we've said before issuers will pay up," he said. "It doesn't weigh as heavily anymore. Everyone is used to it."

The coming weak should be about the same volume, sources said, and a good mix of industrial and financial names.

A market source said he knew of a few deals on the upcoming issue calendar.

Nothing has been announced publicly.

New Verizon, Sysco retreat from gains

A secondary trader said that the new Verizon and Sysco bonds priced Thursday, "both softened up a little" on Friday, giving up the modest gains they had recorded in initial aftermarket activity after their respective pricings.

In the case of Verizon's big multi-part $4 billion mega-deal, he said that its 4.35% notes due 2013, which priced at a spread of 163 basis points over Treasuries, and its 5.50% notes due 2018, which priced at 178 bps over, "were both trading behind issue." However, he saw the new Verizon 6.40% bonds due 2038, which priced at 195 bps over, were "well bid for."

Overall, he said activity levels were "muted" versus Thursday's.

Bank, broker CDS spreads widen

Another trader called the session "ridiculously quiet," noting that there was "a lot of pressure on credit throughout the day."

That translated in CDS spreads on major bank paper being anywhere from 5 bps wider to 15 bps wider. He said Wachovia Bank was "the stepchild" of the day, its debt-protection contracts 15 bps wider at 160 bps bid, 165 bps offered. Major brokerage names, he said, were about 10 bps wider "across the board."

He noted that lately, "there's been a lot of pressure on the LCDX loan index. People are thinking that there may have to be some more writedowns, because these banks and brokers are long so much of these leveraged loans products."

MBIA, Ambac better

The trader saw bond insurance giant MBIA's CDS costs narrow slightly in the face of the company's successful effort to boost its capital through a stock sale, as well as the hope that help may be forthcoming to rescue the struggling monolines by boosting their capital.

He quoted MBIA's debt-protection costs at 13% to 15% up front plus 500 basis points annually, representing a tightening from the 16% to 18% upfront cost seen in the previous session. Ambac's CDS costs were "a little better as well" at 14% to 16% upfront plus the 500 bps annual fee,

Another trader meantime saw MBIA's 14% surplus notes due 2033 at 91 bid, 93 offered, which he called up a point from Thursday's levels, saying that the notes - nominally investment-grade instruments which have recently been widely traded off junk desks at a number of shops - benefited from the news that the company had sold $1 billion of new shares on Thursday to beef up its capital reserves and thus preserve its vaunted AAA financial strength rating.

The New York-based company had sold $1 billion of the notes at par approximately a month ago, but then saw them losing 3 or 4 points a day over a number of sessions in later January and finally bottoming around the 70 level, on investor concerns over whether MBIA, the largest bond insurer, might lose its AAA rating, after Moody's Investors Service, for one, put it on watch for a possible downgrade, along with some of its smaller peers such as Ambac Financial Group Inc. Moody's and other ratings services expressed concerns about the liquidity and capital positions of the bond insurers in the wake of an expected rise in defaults in their insured bonds connected to the ongoing credit crunch. After hitting their rock-bottom levels late in January, the MBIA bonds reversed course and climbed back above the 90 bid mark, helped by the news that New York state insurance regulators and major banks were working on a plan to boost the capital levels of MBIA, Ambac and the other insurers to enable them to keep their ratings at an acceptable level.

With nothing set in stone yet on that front, MBIA moved to shore up its own capital position, originally announcing plans to sell $750 million of new shares, and ultimately increasing that issue so it could reap $1 billion of fresh capital. The 14% bonds - which had peaked about 92 at mid-week and then eased slightly back to around 90 - moved back up on Friday, the trader said, because "having $1 billion on hand always helps."

Another trader noted that MBIA was also helped on Friday by "rumors of a rescue plan by the New York State Insurance Division that came out late in the day - they may have something [this upcoming] week."

Recent issues still hold their own

Back among recently priced issues, a market source saw UPS' recently priced 5.50% notes due 2018 come in more than 10 bps on the session to about the 120 bps mark. That is well under the 165 bps spread at which those bonds priced about a month ago.

Also seen holding their own were UnitedHealth's 6.875% notes due 2038, which priced at 262.5 bps over a week ago, but which now have narrowed to 239 bps.

Target Corp.'s 7% bonds due 2038 were seen Friday at 225 bps over, well in from last month's pricing at a 270 bps spread.

General Electric Capital's 5.875% bonds due 2038, which priced at 165 bps over about a month ago, were trading around 142 bps over on Friday, a market source said.

© 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.