Credit Suisse, Toyota price as backlog builds, Duke Realty announces preferreds; Morgan Stanley weak

By Andrea Heisinger and Paul Deckelman

Omaha, Feb. 13 - There was not much coming into the investment-grade market Wednesday except a new issue from Credit Suisse.

The Swiss investment bank's New York branch priced $2 billion of 5.75% 10-year subordinated notes at 99.671 with a spread of Treasuries plus 212.5 basis points.

Books were run by Credit Suisse Securities LLC.

A market source said although the company doesn't have an outstanding 10-year note to compare, using an outstanding five-year note he figured the company paid a 25 to 30 bps new issue premium.

In the investment-grade secondary market Wednesday, declining issues led advancers by about a six-to-five ratio, while overall market activity, reflected in dollar volumes, rose about 4% from Tuesday's levels.

Morgan Stanley's bonds were seen having eased as the Wall Street giant announced plans to cut 1,000 mortgage-related jobs - the latest fallout from the mortgage market meltdown and the resulting weakness throughout the credit markets generally. Other financial names seen moving on the downside included Washington Mutual and Capital One.

Outside of the financial sphere, UnitedHealth Group's bonds were seen actively traded and lower on the day.

Toyota brings $100 million

Another small issue came from Toyota Motor Credit Corp. which priced $100 million of one-year floating-rate notes at par to yield the federal funds rate plus 27 bps.

Williams Capital Group LP was agent.

Duke Realty to sell preferreds

Commercial real estate company Duke Realty Corp. announced it will issue depository shares of cumulative redeemable preferred stock, according to a filing with the Securities and Exchange Commission.

Guidance has been set on the issue at $150 million with a dividend of 8.375%, a source close to the deal said. The amount is very likely to increase, the source added.

Pricing is expected Thursday, with Citigroup Global Markets Inc., Morgan Stanley & Co. Inc., UBS Investment Bank and Wachovia Capital Securities LLC running the books.

Good conditions but few deals

The story Wednesday was much the same as it has been for the past week, with conditions remaining stable but little in the way of issuers.

Many of those that have braved the market have been issuing preferreds, for good reason, a source said.

"The market's there for them right now," he said. "The preferred market has to make sure the investors are there, whether it's a financial or industrial issue. Right now investors are exiting the equity market and getting into preferreds."

The source noted they are paying a higher interest rate for this kind of issue.

Conditions Wednesday potentially made for a strong day for issuance, but that didn't mean a rush of issuers.

"Nothing was really ready today," a source said.

"I'm hearing there's a backlog building," another market source said.

It's possible there may be a backlog of companies waiting to come into the market, but stability is not all it will take to boost volume.

"I think it will stay slow, even if there is a backlog," a source said. "It will come out in the next couple of months, but nothing ready to go right now."

Nothing is expected for the rest of this week except the Duke issue tomorrow.

Morgan Stanley wider

The news that Morgan Stanley plans to eliminate 1,000 jobs as it cuts back on its residential mortgage operations in response to the sagging mortgage market was seen by observers as just the latest reminder that even the biggest Wall Street names - Morgan Stanley is the second-biggest investment bank - cannot escape the fallout from what began as the subprime mortgage market's meltdown.

A market source saw Morgan Stanley's actively traded 6.75% notes due 2011 having widened out to around 228 basis points over Treasuries from prior levels at 220 bps.

Other financial credits seen having widened out on sector weakness included Capital One's 7.686% notes due 2036, which ended the day 15 bps wider at 565 bps, and Washington Mutual's 6.875% notes due 2011, out about 25 bps to the 655 bps level.

A trader saw the credit-default swaps spreads for major banking and brokerage companies essentially unchanged from prior levels.

He saw a 10 bps widening to 475 bps bid, 495 bps offered in the debt-protection costs of troubled monoline bond insurer MBIA Inc.'s AAA paper, while the CDS cost for Ambac Financial Group Inc. was unchanged at 450 bps bid, 470 bps offered.

That followed by a day the news that billionaire investor Warren Buffett had offered to assume some $800 billion of municipal debt insurance obligations from MBIA, Ambac and sector peer FGIC - an offer which most in the financial markets said would be very good for Buffett but very bad for the insurers, and thus, unlikely to be accepted.

UnitedHealth trades

Outside of the financials, UnitedHealthcare's recently priced new bonds were seen being actively traded, at generally heavier levels. A market source said its 6.875% bonds due 2038 widened 6 bps to 252 bps. It 6% notes due 2018 were trading at a 228 bps over - still both in from their respective pricing levels of 262.5 bps and 237.5 bps, respectively.

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