Duke Energy Indiana, 3M price in rough market; AmEx notes tighten in quiet secondary

By Andrea Heisinger

New York, Aug. 18 - A duo of new investment-grade deals, from 3M Co. and Duke Energy Indiana, Inc., led off the week by pricing Monday.

The volume for the primary market is expected to be moderate for the week, sources have said.

"There's not much to report today," one source said. "It's really quiet."

In the secondary market, issues were typically quiet for a Monday, sources said.

Lowe's Cos. Inc. announced a slight downturn in earnings for the second quarter, and was among the names that were being monitored in the secondary.

High-quality names start week

The highly-rated subsidiary of Duke Energy Corp., Duke Energy Indiana, priced $500 million 6.35% 30-year first mortgage bonds (A3/A) Monday.

The bonds priced at 99.682 to yield 6.374% with a spread of Treasuries plus 193 basis points.

This was in the middle of price talk whispered at 190 to 195 bps, a source close to the deal said.

Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Inc. and UBS Investment Bank ran the books.

3M brings $850 million

Another quality name, 3M, priced $850 million of 4.375% five-year medium-term notes.

They priced at 99.824 to yield 4.415% with a spread of Treasuries plus 135 bps.

The issue priced in line with talk of the 135 bps area, a source close to the deal said.

It was oversubscribed, the source said, although they were not able to say by how much.

Another source said the issue went well and that "obviously it's a great name."

"It's a highly defensive deal," he said, also confirming that it was a holdover from last week.

"The credit market was stable at the open, and it was sufficient for them to come in," he added.

Bookrunners were Goldman Sachs & Co. and Citigroup Global Markets Inc.

Quiet days ahead

Minimal new issuance is expected in the next couple of weeks as traders and investors take advantage of the last weeks of summer to squeeze in vacations.

News of continued woes at mortgage lenders Fannie Mae and Freddie Mac from the weekend unsettled markets Monday, although that had little impact on the investment-grade primary, a source said.

"It mostly insinuated common stock was in trouble," he said. "It didn't affect [bonds] to the same extent. It was mostly in the equity markets."

The combination of light staffing of desks and uncertain market conditions will likely lead all but the most hearty issuers to hold off on pricing until after Labor Day.

"I doubt we'll see the same size [this week] as last week," a source said. "We had some large issues late last week from Citi, AIG and then AmEx that pushed supply above what it would have been otherwise."

Monday's tone at the market close won't encourage many to issue Tuesday.

"Credit went out unchanged, but someone would really need to get some cash on the balance sheet [to issue]," the source said.

"I think it's open to utilities or something like that, but if they're an infrequent issuer they are really going to need some cash to come in."

Duke widens, 3M tightens in secondary

The day's new issues were seen mixed in secondary trading, with one widening slightly while the other went in the opposite direction.

Duke Energy Indiana's bonds were seen unchanged to a little wider at 196 bps bid, 192 bps offered, a secondary source said, from 193 bps at pricing.

The 3M five-year notes were slightly tighter at 132 bps bid, 128 bps offered after pricing at 135 bps, the source said.

The secondary market in general was typical of a summer Monday, sources said.

"There's really not much going on, very light volume," a source said.

"There's not even much to watch at this point," another source said.

Lowe's unchanged on earnings

Slightly lower earnings for the second quarter from Lowe's didn't have much effect on the home-improvement retailers bonds.

Outstanding notes, like the company's notes due 2035, seen at 235 bps bid mid-afternoon Monday, were "maybe 1 bp wider, or mostly unchanged," a trader said.

The second-largest home-improvement retailer announced earnings of $938 million for the second quarter, down 7.9% from $1 billion a year ago.

Despite the slight decline, sales were better than analysts' predictions, a source said.

Recent AmEx notes tighten

American Express Credit Co. newly priced 7.3% five-year notes were seen tightening Monday.

The came to market at Treasuries plus 425 bps Friday and during trading Monday came in 10 to 15 bps to 415 bps bid, a source said.

The tightening was not surprising to one primary source, who said that they would inevitably tighten due to "how much extra spread was baked in."

GE Capital day's most active

General Electric Capital Corp.'s bonds were seen having the day's highest volume Monday.

The company's 5.875% 30-year notes were seen at a volume of 51,725 mid afternoon, while its 5.875% notes due 2012 were at 39,052 volume.

The company's subsidiary, NBC Universal, was in the news for having better-than-expected ratings for the Beijing Olympics broadcast.

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