Korea Gas offers bonds, Discover Financial Services plans sale; spreads tighter; Citi mixed

By Andrea Heisinger and Paul Deckelman

New York, July 9 - A deal from Korea Gas Corp. and a planned sale from Discover Financial Services Inc. were the bulk of news coming out of the high-grade primary Thursday.

The week is winding down, and sources are already looking to the coming week in hopes that issuance will pick up slightly.

The offering from Discover Financial is expected to price Friday, and is one of the few solid sales on the calendar for the week's remainder.

Among the established issues in the secondary arena on Thursday, a market source said the CDX Series 12 North American high-grade index narrowed by 3 basis points to a mid bid-asked spread level of 142 bps.

Advancing issues - which on Wednesday had led decliners for a ninth consecutive session - remained in the lead on Thursday, although their margin narrowed to less than eight to seven.

Overall market activity, reflected in dollar-volume totals, rose 7% from Wednesday's pace.

Spreads in general were seen generally tighter, in line with higher Treasury yields; for instance, the yield on the benchmark 10-year note rose 11 bps on Thursday to 3.41%.

With a dearth of new paper coming in, issues from earlier in the week, like Tuesday's new deals from Wisconsin Power & Light Co. and Interstate Power & Light Co. continued to trade around, and there was active dealing in Oracle Corp.'s recent mega-deal.

Among the financials, news of a major executive suite shakeup at Citigroup left the big New York banking company's bonds mixed - but its credit-default swaps tightened solidly.

Korea Gas prices five-year

Korea Gas priced $500 million of 6% five-year bonds at Treasuries plus 390 bps, a source familiar with the deal said.

The bonds priced tighter than talk of Treasuries plus 400 bps to 420 bps.

Merrill Lynch, Deutsche Bank Securities and J.P. Morgan Securities acted as bookrunners for the Rule 144A and Regulation S deal.

Proceeds will be used for general corporate purposes.

The issuer is a Bundang, South Korea-based energy firm.

Discover Financial plans note sale

Discover Financial Services is planning a sale of senior notes, according to a 424B5 filing with the Securities and Exchange Commission on Thursday.

A source close to the sale said it is pricing Friday.

The company recently completed a common stock offering, which is not dependent on the senior notes.

The bookrunner for the notes is J.P. Morgan Securities.

Proceeds will go for general corporate purposes.

The credit card and electronic payment company is based in Riverwoods, Ill.

Tone unchanged, issuance sluggish

Thursday followed the rest of the week's issuance pattern, with one deal trickling into the market and at least one more on the horizon.

The Korea Gas bonds priced fairly early, and by late afternoon, syndicate desks were already looking ahead to the coming week when issuance may pick up.

"It really can't get any slower," a market source said. "I think everyone's on vacation this week," another source said.

As for the tone, there was little or no change from the previous day, a source said.

"It was just another day," he said. "I don't know if we held on to that rally."

He was referring to a rally sparked Wednesday afternoon at the end of a 10-year Treasury note sale.

The primary was "very quiet across the board," a syndicate source said. "It's dead out there."

Toyota reopens floater twice

Toyota Motor Credit Corp. reopened its issue of three-year medium-term floating-rate notes twice on Wednesday to add $13 million, according to FWP Securities and Exchange Commission filings.

The extra notes priced at 100.0065 with a coupon of three-month Libor plus 100 bps.

Total issuance is $88 million, including $75 million priced July 6.

Deutsche Bank Securities was agent for $10 million of the reopening, while CastleOak Securities handled the remaining $3 million.

The U.S. financing arm of Toyota Financial is based in Torrance, Calif.

Recent power bonds hang in

A trader saw Wisconsin Power & Light's recently priced 5% notes due 2019 trading at 149 bps bid, 144 bps offer - little changed on the day from the firmer levels at which those bonds have been trading since their pricing on Tuesday. The company - a unit of Madison, Wis.-based electric and gas utility company Alliant Energy Corp. - had priced its $250 million of bonds at a spread of 160 bps over comparable Treasuries.

He also saw the 6.25% bonds due 2039 of Interstate Power & Light Co. - Wisconsin Power & Light's corporate cousin, also being an Alliant unit - likewise hanging in little changed at 186 bps bid, 180 bps offered. The company had priced its $300 million issue of paper - upsized from the originally shopped $250 million - on Tuesday at 195 bps over.

Oracle bonds still active

A market source said that Oracle Corp.'s recently priced 5% notes due 2019 was likely the day's most active high-grade issue, with almost $78 million of the bonds having changed hands by late afternoon. He quoted them trading at 134 bps, widening on the day.

Later in the session, another trader saw them having widened further still to 152 bps bid - not much removed from the 155 bps level at which the $1.5 billion of bonds had priced on June 30 as part of a $4.5 billion three-part mega-deal.

The trader also saw the Redwood Shores, Calif.-based software maker's $1.25 billion of 6.125% bonds due 2039 at 186 bps bid, 180 bps offered, right around the 185 bps over level at which those bonds had priced.

Citi bonds are mixed

Among the financials, the news that Citigroup had shaken up its executive suite, replacing CFO Ned Kelly - after only four months in the post - with John Gerspach, who will be the fifth CFO in as many years, did not produce a heavy rush of activity in Citi's bonds, which were seen mixed.

Its 6½% notes due 2013, for instance, were seen about 30 bps tighter on the day at 435 bps over. Meanwhile, its 5.10% notes due 2011 widened out by a like amount, also to around the 430 bps level.

Bank, brokerage CDS tighten up

A trader who watches the credit-default swaps market said that the cost of protecting a holder of Citi's bonds against a possible event of default was 10 bps tighter on the day at 395 bps bid, 405 bps offered, "so they broke inside of 400 [bps], rallying like a banshee."

Overall, he said that bank CDS levels were 5 bps to 10 bps tighter, while CDS costs for the bonds of major investment banks were 5 bps tighter across the board, with Goldman Sachs narrowing to 145 bps bid, 150 bps offered.

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