John Deere reopens as week ends with more than $2.75 billion issuance; volume increase expected Monday

By Andrea Heisinger and Paul Deckelman

Omaha, Feb. 22 - John Deere Capital Corp. reopened an issue of notes Friday, with the week ending as quietly as it began.

In the investment-grade secondary market Friday, advancing issues led decliners by a six-to-five ratio, while overall market activity, reflected in dollar volumes, tumbled 37% from Thursday's level.

The major snowstorm which dumped half a foot of snow on New York and other parts of the Northeast was blamed for the generally lackluster showing seen most of the session.

However, things began to pick up later on, the market given a jolt by news reports that a deal to help Ambac Financial Group Inc. bolster its capital position and keep its vaunted AAA credit rating is on the way. The monoline bond insurer's debt-protection costs came in solidly on the news.

Apart from the monolines, not much activity was seen in other quarters, although The Home Depot's bonds were seen having widened out ahead of the big home-improvement retailer's quarterly earnings slated to be released this coming week.

Deere reopens

John Deere reopened Thursday's issue of two-year floating-rate notes to add $100 million.

Total issuance is now $600 million, including the $500 million priced Thursday.

The notes priced at par to yield three-month Libor plus 45 basis points.

Credit Suisse Securities LLC and J.P. Morgan Securities Inc. were bookrunners.

Issuance for the four-day week was more than $2.75 billion, compared to last week's total of $12 billion.

Busy week expected

Traders were expecting a quiet week this past week, saying a breather was needed and it wouldn't last for long.

"We should be pretty flush with issuance for next week," a source said. "I know a lot of things sitting out there."

Among issuers for the week were Ryder System, Inc., Lehman Brothers Holdings Inc., KeyCorp Capital Trust X, Toyota Motor Credit Corp., Textron Financial Corp. and Deutsche Bank AG, London Branch.

Another notable event was Credit Suisse repricing its $2 billion issue of 10-year subordinated notes on investor pressure. The investment bank had larger than expected write downs.

The coupon was increased by 25 bps to 6% from 5.75%, as was the spread, to 237.5 bps from 212.5 bps.

The repricing came on the settlement date of the issue.

One market source said he couldn't remember the last time a company went through with repricing its issue and that it was not a common occurrence.

Continued stability and a drought of new issuance this week has meant predictions of a building backlog starting to come out starting Monday.

"Now that people have filed their 10-Ks they are ready to issue," a source said. "There is some backlog, but it's been pretty stable so it's been issuers' choice to stay out of the market."

The next three weeks should pick up in terms of volume, sources said.

"Absolutely nothing happened today, but unless we get some negative headlines between now and Monday we'll see a lot of names coming into the market," a market source said.

Spreads mostly steady

A trader said that Friday was generally "a pretty neutral day in spreads." He said that there was "a little more activity than in junk [bond] land, but it was all relative."

He said that the new John Deere Capital floating-rate notes due 2010 that priced during Thursday's session were nowhere to be seen.

Ambac news stirs things up

A trader said that overall the market was "pretty slow," but added that late in the day, "the market started to come around, helped by news reports that a deal with banks and insurance regulators to bail Ambac out of its current liquidity situation could be announced Monday or Tuesday.

He saw Ambac's debt-protection costs "around 100 bps tighter" on its AA bonds, which he saw having come in to 720 bps bid, 800 bps offered, while its AAA rated bonds' CDS costs were 30 bps tighter on the day at 370 bps bid, 400 bps offered.

He did not have any soundings on larger rival MBIA Inc., whose debt-protections costs have widened out to similar levels amid the bond-insurance industry's problems.

Ambac's talks with banks may lead to announcement of an agreement early next week that would save its AAA credit rating and avoid losses on $566 billion of debt, according to a person familiar with the discussions.

According to news reports, banks may invest about $3 billion in the company, hopefully bolstering its capital position enough to satisfy the major ratings agencies, thus enabling the New York-based monoline company to retain its AAA rating for its municipal and asset-backed securities guaranty units. That, in turn would help banks and municipal debt investors avoid losses on securities it guarantees.

According to some estimates, the banks stood to lose as much as $70 billion if the top-rated bond insurers such as Ambac, MBIA and FGIC Corp were to lose their top-drawer credit ratings.

Home Depot off on earnings fears

Elsewhere, Home Depot's 5.25% notes due 2013 were seen among the more actively traded issues, widening out about 10 bps to the 330 bps mark.

The big Atlanta-based home-improvement retaile, along with competitors Lowe's Cos. and Sears Holding Corp., is slated to report fourth-quarter earnings. Most analysts are looking at a pretty dismal showing for the sector, in line with falling home prices and the ongoing credit crunch, which has persuaded some consumers to put off such big-ticket items as home improvements.

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