UPS, Canadian Natural Resources, Florida P&L, Questar, Emerson, KDB price issues on high volume day

By Andrea Heisinger and Paul Deckelman

Omaha, Jan. 10 - The pace of new investment-grade issuance quickened Thursday, with United Parcel Service, Inc., Canadian Natural Resources Ltd., Florida Power & Light Co., ANZ National International Ltd., Questar Pipeline Co., Emerson Electric Co., KfW and Korea Development Bank pricing deals.

"There wasn't that positive of an open this morning, but people had things they needed to get done," a market source said.

In the investment-grade secondary market Thursday, advancing issues and decliners were about evenly matched, while overall market activity - reflected in dollar volume - fell about 7% from Tuesday's levels.

The big news of the day - the late-breaking story about the acquisition talks between Bank of America and Countrywide Financial Corp. - not only gave a big boost to the latter company's bonds, which are still nominally investment-grade rated, despite the company's recent distress, but also were seen strengthening the overall financial sector, since a transaction would help to steady a badly shaken mortgage market.

There was not much activity in B of A bonds per se, although they were seen having tightened, along with other major bank and brokerage names like Merrill Lynch and Lehman Brothers

UPS oversubscribed

Back in primary action, the UPS issue came as $4 billion in three tranches of senior notes.

"It went well even though things weren't that positive this morning," a source close to the deal said. "We ended up with the books oversubscribed."

The company had to get at least $4 billion done, the source said, and they had $3 billion sold right out of the gate.

The $1.75 billion tranche of 4.5% five-year notes priced at 99.575 to yield 4.596% at a spread of Treasuries plus 145 basis points.

The $750 million tranche of 5.5% 10-year notes priced at 99.802 to yield 5.526% at a spread of Treasuries plus 165 bps.

And the $1.5 billion tranche of 6.2% 30-year notes priced at 99.487 to yield 6.338% at a spread of Treasuries plus 180 bps.

All three tranches priced at the tight end of price talk.

Bookrunners were Goldman Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Inc., Citigroup Global Markets Inc. and Morgan Stanley & Co.

Proceeds will be used to repay a portion of outstanding commercial paper issued in connection with the Dec. 26 payment to central states, southeast and southwest areas pension fund.

After seeing price talk, a market source said that bookrunners must have looked at this week's General Electric Capital Corp. issue for guidance as UPS had no comparable outstanding notes.

A source close to the UPS issue said they weren't looking at pricing from the GE deal, but more at color from investors.

Canadian Natural sells upsized deal

Another sizable issue for the day came from Canadian Natural Resources.

The company priced $1.2 billion of notes in three tranches, upsized from $1 billion.

The $400 million tranche of 5.15% five-year notes priced at 99.971 to yield 5.156% at a spread of Treasuries plus 200 bps.

The $400 million tranche of 5.90% 10-year notes priced at 99.675 to yield 5.943% at a spread of Treasuries plus 205 bps.

And the $400 million tranche of 6.75% 30-year notes priced at 99.853 to yield 6.761% at a spread of Treasuries plus 230 bps.

All of the tranches priced at the tight end of price talk.

Citigroup, Banc of America Securities LLC, Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. were bookrunners.

Emerson, Questar increased too

The issue from Emerson was an upsized $400 million of 5.25% 10-year notes priced at 99.740 to yield 5.283% at a spread of Treasuries plus 145 bps.

The issue was increased from $300 million.

J.P. Morgan was bookrunner.

Questar also upsized its issue from $100 million to $200 million.

The 5.83% 10-year notes priced at 99.953 to yield 5.838% at a spread of Treasuries plus 200 bps.

Banc of America and SunTrust Robinson Humphrey ran the books.

Florida Power & Light priced yet another upsized issue, increasing from $400 million to $600 million in first mortgage bonds.

The 5.95% 30-year bonds priced at 99.456 to yield 5.989% at a spread of Treasuries plus 158 bps.

Citigroup, Morgan Stanley, Wachovia Capital Securities LLC and Calyon Securities Inc. were bookrunners.

More extendible floaters

ANZ National priced $1.75 billion of extendible floating-rate notes in a Rule 144A offering.

They priced at par to yield three-month Libor plus 22 bps for the first year. They step up 2 bps after the first year and each year after until the final year when it increases by 1 bp.

Goldman Sachs and Morgan Stanley were bookrunners.

Korea Development Bank priced $1 billion in 5.3% five-year bonds at 99.857 to yield 5.333% at a spread of Treasuries plus 218 bps.

Deutsche Bank Securities Inc., Citigroup, Depfa Bank and HSBC were bookrunners.

Following its $5 billion issue Wednesday, KfW priced a $100 million issue of 3.475% one-year notes at par Thursday.

HSBC Securities Inc. was bookrunner.

Nordic, Xcel, Jabil to come

Other issues were announced but did not price Thursday.

Nordic Investment Bank is expected to price a $1.25 billion issue of three-year global bonds Friday, market sources said.

The issue was increased from $1 billion.

Citigroup, J.P. Morgan and RBC Capital Markets are bookrunners.

Xcel Energy Inc. is planning an issue of 60-year junior subordinated notes, according to a Securities and Exchange Commission filing.

The issue is not expected to price until early next week, a source close to the deal said.

Morgan Stanley, Citigroup and J.P. Morgan are bookrunners.

And Jabil Circuit, Inc. is planning a $300 million split-rated issue of 10-year senior notes via Citigroup and J.P. Morgan.

Pricing is expected Friday.

The trend of Friday typically being slow could be bucked this week, sources said.

A day of negativity Wednesday forced some issuers to hold off, which could mean at least a few deals coming into the market before the end of the week.

"I wouldn't be surprised if we see several," a source said. "There's some positivity after talk of [Fed] rate cuts."

The secondary market has slowed as the new issue backlog comes out.

"People aren't playing in secondary," a market source said. "They're spending all of their money on new issues because they're getting them cheap."

Financials better

"Across the board," a trader said, "bank and finance paper was doing better after that rumor" that Countrywide and B of A were in M&A talks began to make the rounds fueled by a story in The Wall Street Journal's online edition.

He saw Countrywide's 6.25% notes due 2016 jump above the 70 mark from prior levels in the 35-42 area; the bonds eventually added on several additional points and closed around 80 bid, a nearly 40-point gain on the day. Other, shorter-dated Countrywide bonds also moved up smartly, with its 3.25% notes coming due in May finishing up about 15 points on the session in the mid-90s.

A market source saw B of A's 5.375% notes due 2011 having tightened 15 basis points on the day to just above the 120 level.

The trader said other financials were also better, among them Citigroup and Morgan Stanley.

"I guess that people felt a little better after the news [of the talks] because if [Countrywide] gets bought, Bank of America is on the inside and knows a lot of stuff and is comfortable with it, maybe things aren't as bad as everybody thinks they are. That's the logic behind things getting a little bit better across the board. "

At another desk, Merrill's 6.050% notes due 2012 were seen having come in around 15 bps to the 201 bps level, while Lehman's 6.875% bonds due 2037 were around 10 bps tighter, at 275 bps.

The trader also said that American Express' news late in the day that the big financial-services provider will take a $440 million pre-tax charge against possible losses from economic weakness "did not translate" into any bond movement that he had seen.

He saw the new GE Capital 5.875% bonds due 2038, which priced Tuesday at 165 bps over, "wrapped around 170."

In the credit-default swap market, a trader saw B of A's debt-protection costs narrow about 3 bps to 67 bps bid, 69 bps offered.

Countrywide's CDS costs were also seen lower - a sign of increased market confidence. While the annual cost remains 500 bps, the up-front cost fell to 15% from its recent high of 30%, hit earlier in the week when bankruptcy rumors swirled around the company.

The trader also saw the CDS costs come in across the board - a sign of lessened market jitters about the financial sector - with the banks 1 bp to 5 bps narrower, and the banks 5 bps to 10 bps tighter.

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