Lennox International sells notes; headlines trigger volatility; Goldman leads way in secondary

By Andrea Heisinger and Cristal Cody

New York, May 3 - Lennox International Inc. was the only issuer in the high-grade market on Monday amid continued worries from Europe and other headlines.

Lennox priced its $200 million of seven-year notes by mid-afternoon at the tight end of guidance.

Other than that single deal, there was not much activity in the primary side of the market, a source said.

"That [Lennox] was pretty much it for the day."

Financials moved out in secondary trading, led again by Goldman Sachs Group Inc.'s high-grade debt, which was mostly weaker on the growing scrutiny into its investments, according to sources.

Activity was mostly flat, according to sources.

Overall Trace volume fell nearly 30% to about $8 billion, according to one source.

Meanwhile, the CDX Series 14 North American high-grade index firmed 2 basis points to a mid bid-asked spread level of 90 bps, according to a source.

In addition, Treasuries eased on Monday and reversed gains made the previous week, sources said.

One trader noted that some of the fall was because of a "reversal of flight to quality trade from Friday, now that Greece is out of the way - for today."

The yield on the 10-year benchmark Treasury note moved out 3 bps to 3.69%, while the yield on the 30-year Treasury bond eased 1 bp to 4.53%.

Lennox sells $200 million

Lennox International sold $200 million of 4.9% seven-year senior unsecured notes (Baa3/BBB-) later in the day to yield Treasuries plus 175 bps, a source close to the deal said.

This was at the tight end of guidance in the range of 175 bps to 187.5 bps. Books were "just over two times" oversubscribed, the source said. The company was happy with the spread, he added.

The deal is guaranteed by domestic subsidiaries Lennox Industries Inc., Allied Air Enterprises Inc., Service Experts LLC and Lennox Global Ltd.

Bookrunners were J.P. Morgan Securities and Wells Fargo Securities.

According to other sources, Lennox's new offering did not register on traders' screens after pricing.

"Saw nothing in these bonds," one source said.

Proceeds are being used for general corporate purposes, including repayment of debt under a revolving credit facility, working capital and common stock share repurchase.

Lennox's ratings were upgraded by Moody's Investors Service at the end of the previous week to investment-grade from junk.

The climate control services company is based in Richardson, Texas.

Issuers hold off on deals

It is likely to be a slow week in the high-grade market unless the tone improves. Companies and syndicate desks were in a "wait-and-see" mode by the end of the day, a source said.

Another source backed that up, saying "there was just a lot of volatility" from different directions.

"Everyone's waiting to see what happens next," he said.

Further fears about Spain's economic state unfolded in past days, and there are also fears about impact from the leak of a BP plc oil drilling rig in the Gulf of Mexico.

"There's a lot going on out there," a syndicate source from a larger desk said. They added that the calendar for the week "wasn't that rich anyway," but that there could be more action on Tuesday.

Companies coming out of earnings blackout may issue debt anyway if they need to, he said.

Financials give weak start

Meanwhile in secondary trading, Goldman's notes continued to move out.

On Friday, the Justice Department launched a criminal investigation over how the New York-based bank arranged subprime mortgage securities investments. The Securities and Exchange Commission filed fraud charges against Goldman on April 16 in regards to transactions from 2006 and 2007.

Goldman's high-grade debt was "out about 15 bps today," a trader said.

Ending the day, Goldman's 6.75% notes due 2037 widened 6 bps to 252 bps, according to a source.

Also in Monday trading, Goldman's 6.15% notes due 2018 were quoted 1 bp wider at 189 bps over Treasuries.

In other bank paper, the two-year notes from Charlotte, N.C.-based Bank of America Corp. were 3 bps weaker in trading, according to a source. The 7.375% notes due 2014 were seen at 158 bps on Monday, compared to 155 bps on Friday.

Elsewhere, short paper from Citigroup Inc. also moved out. Citigroup's 6.375% notes due 2014 eased 12 bps to 192 bps on Monday, according to a source.

In addition, New York-based Citigroup's 5.5% notes due 2014 also moved out 10 bps to 212 bps.

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