Lehman outcome remains primary focus; weekend resolution eyed; secondary centered on financials

By Andrea Heisinger

New York, Sept. 12 - It was a quiet Friday reminiscent of those during the summer, only this one was inspired more by uncertainty over the fate of Lehman Brothers Holdings Inc.

There was continued speculation, but no solid decision, on who would buy the struggling New York investment bank or what the details would be of a potential transaction.

The secondary market continued to focus on Lehman, as well as other struggling financials like Washington Mutual Inc., as both showed up in the most-traded list for the day. Three of Lehman's issues were at the top of that list.

That left the industrial and retail half of the secondary "very quiet," according to one source, who wondered when that might change.

Korea postpones issue

The Republic of Korea opted to postpone its issue of dollar-denominated 10-year notes due to market conditions Friday, a market source said.

Barclays Capital, HSBC Securities, Lehman Brothers, Samsung Securities and UBS Investment Bank were tapped as bookrunners.

Lehman sale expected soon

The sale of Lehman Brothers is expected to happen in the next few days, sources said, although no one is sure who the buyer will be, what the price is or whether the government will back the sale.

The Lehman news again dominated the primary market Friday, overshadowing other news.

The Bureau of Labor Statistics announced the Producer Price Index for Finished Goods fell by 0.9% in August after rising in June and July.

Prices for goods other than food or energy rose by 0.2%, which was a decline from the 0.7% from July.

This data was only a blip on most people's radar in the primary market as they waited for some outcome from Lehman.

"We're expecting something to happen over the weekend," one source said. Commenting how the Bear Stearns sale to JPMorgan Chase & Co. happened over a weekend, then the Fannie Mae, Freddie Mac bailout, he said "funny how that works out, huh?"

The Lehman sale continued to be an open-ended question at the market close Friday.

"I don't think anyone knows [what will happen]," a source said. "There are a lot of questions, like the price, what will happen to the capital structure and if the Fed will intervene."

"It's a foregone conclusion that it's getting done."

Two sources declined to put a number of next week's issuance, saying it was too tough to make a call at this point pending an outcome to the Lehman situation.

There is still a substantial backlog of companies awaiting viable market conditions.

Predictions at the beginning of September had issuance for the month at $80 billion to $100 billion.

"We would still have to come up with about $70 billion," a source said.

That is looking less possible.

This week was expected to be a busy one, and it was for a couple of days after the boost to the market that followed the Fannie and Freddie bailout.

That boost was short lived as it was followed closely by the rapid decline of Lehman.

"The markets are really crappy right now," a source said. "It doesn't make sense for someone to come in under risk and unnecessary volatility."

Week ends with $6.5 billion

The end of the week saw about $6.5 billion of new issues. This was about half of the amount of the previous week, which had $12.393 billion in offerings.

Almost all of the week's issuance came on Monday and Tuesday in the window that opened after Fannie Mae and Freddie Mac's rescue by the government and before negative headlines from Lehman Brothers and Washington Mutual dominated the primary's consciousness.

A small amount of the offerings for the week came in over the $1 billion mark.

Those included Halliburton Co. and OeKB issuing debt as well as Barrick North America Finance LLC and Barrick Gold Financeco LLC jointly issuing $2 billion.

Smaller deals came from Consumers Energy Co., Agrium Inc. and Aetna, Inc.

Lehman tops trade volume list

The three top volume trades Friday were all seen coming from Lehman Brothers Holdings.

The investment bank's 7.5% notes due 2038, 6.875% notes due 2018 and 5.625% notes due 2013 topped the day's list of the most traded.

More Lehman issues, as well as some from Washington Mutual subsidiaries, were toward the top of the list that came out in early afternoon.

Price-wise, Lehman Brothers' bonds - now firmly ensconced as a de facto junk issue despite its still nominally investment-grade ratings - were seen lower on Friday, although here and there, some of the bonds did show improvement from the pounding they had taken on Thursday.

For instance, a trader saw Lehman's 7 7/8% notes due 2010 trading at 81 as a final round-lot trade on the day, up from 79.5 on Thursday, with $35 million of the bonds changing hands. He also saw Lehman's 6 7/8% notes due 2018 unchanged at 83 on a round-lot basis, with $61 million traded, and its 5¾% notes due 2011 ended at 76.5, down 1/8 on the point, on turnover of $47 million.

However, the biggest-trading issue that he saw was Lehman's 7½% bonds due 2038 - and that bond was way lower, tumbling to a round-lot finish of 64.25 from 77 at the close Wednesday.

A trader at another desk saw the Lehman 6½% notes due 2017 down 2 points at 67 bid, 69 offered.

A market source saw the 6 7/8s actually ending down 2½ points at 80.5, and also saw the tumble in the '38s, pegging them at 64.25 bid at the close, down some 12 points.

WaMu jumps around

Meanwhile, Washington Mutual, whose bonds were officially downgraded to junk on Thursday by Moody's Investors Service, saw its debt firm in the morning on news reports that it was in talks to be acquired by JP Morgan Chase.

However, a trader said, as the day wore on, the JP Morgan talk faded, and the bonds went along with it. He saw the WaMu 6 7/8% notes due 2011 move solidly higher in the morning, up to 53 bid, 54 offered.

But while "the bonds were up at midday on the JP Morgan rumor, as soon as JP Morgan [reportedly] said no, the bonds dropped 5 to 10 points across the board."

He saw the 7¼% notes due 2017 ending down 3 points at 25 bid, 30 offered, after having been 5 to 7 points higher than that. Another source saw the 8¼% notes due 2010 ending down 3 points at 36 bid, 38 offered.

Secondary focus on financials

The focus of the secondary market remained on financial names, as it has since earlier in the week.

"Everyone's so focused on Lehman that no one from the industrial side is touching the market," said a secondary source.

Most of the day's top-traded issues were financial names, with the odd retail or industrial interloper.

The focus is "pretty one sided," said another source.

Halliburton notes mixed in trading

Tuesday's two-tranche issue from Halliburton saw mixed movement in the secondary Friday afternoon, a source said.

The company's 5.9% 10-year notes had tightened considerably, seen at 213 basis points bid, 208 bps offered, from 230 bps pricing.

The 6.7% 30-year notes were largely unchanged at 251 bps bid, 248 bps offered. They priced at 250 bps.

GE, Wells Fargo big movers

Bonds from General Electric Capital Corp. and Wells Fargo & Co. were both seen widening around 30 bps late Friday as financial sector woes drag on.

Vulcan Materials Co. was seen as the day's biggest mover in the other direction, tightening more than 15 bps.

© 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.