January issuance already tops estimates; FIG issuance to continue; JPMorgan notes trade wider

By Aleesia Forni and Andrea Heisinger

New York, Jan. 18 - Issuers took a break on Friday ahead of the long Martin Luther King Jr. Day holiday weekend.

ABN Amro Bank NV gave the terms of its $1 billion trade of three-year notes sold privately on Thursday, a source said.

A report out from Standard & Poor's this week detailed companies included in the S&P 500 index. Analysts included information on companies on the verge of an upgrade or at risk of a downgrade, saying that downgrades may outnumber upgrades in the next three months to two years.

The coming four-day week will see a lighter load of new issues, sources said, following the just-finished week's $36 billion of volume and the previous week's $41 billion.

"I think last January we saw about $45 billion for the whole month, so we're way ahead," a market source said at midday Friday.

There is between $10 billion and $15 billion projected to price in the coming week, most syndicate desks were reporting.

"That's very dependent on any big FIG issuers like we saw this week," one source said, referring to the $6 billion trades priced by both Goldman Sachs Group, Inc. and JPMorgan Chase & Co.

A syndicate source's desk had "a handful of trades" on tap, including more from financial names.

"Morgan Stanley hasn't done anything, and neither has Citi," the source said, referring to possible bond sales by the two banks after earnings.

A quiet spell is expected to set in for the remainder of January.

"It's normally a little quiet for a couple of weeks," a source said. "Retail names usually wait until February [to issue after earnings], but you never know."

The past week saw between $33 billion and $36 billion of new bonds priced, sources said, depending on the inclusion of emerging market bonds, preferred stock or covered bonds in totals.

"We were expecting $50 [billion] to $60 [billion] for the month, so we're already ahead," the syndicate source said.

In the secondary market, JPMorgan's notes were seen weaker during the session, according to one trader.

The source quoted the bank's $1.25 billion five-year notes at 105 basis points bid, 102 bps offered.

The notes sold at a spread of Treasuries plus 103 bps on Thursday.

Meanwhile, the bank's $2.75 billion of 3.2% 10-year notes traded at 137 bps bid, 134 bps offered following Thursday's sale at a spread of 133 bps over Treasuries.

ABN gives terms

ABN Amro Bank sold $1 billion of 1.375% three-year notes (A2/A/A+) to yield Treasuries plus 100 bps, an informed source said.

The sale was done under Rule 144A and Regulation S.

Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. and Morgan Stanley & Co. LLC were the bookrunners.

The bank and financial services company is based in Amsterdam.

S&P details index

The S&P 500 index saw six more investment-grade companies join it in the fourth quarter of 2012, according to a report out from the ratings agency.

As of Dec. 31, 87.9% of the rated companies in the index were investment grade, compared with 47% of U.S. companies rated by S&P in the index at the end of 2011.

There are 57 companies with the greatest risk of downgrade in the index, along with 37 that have the greatest potential for upgrades.

Among investment-grade companies, there are 50 potential downgrades and 25 potential upgrades.

The financial sector has the greatest downgrade potential in the near term, according to the report, while telecommunications companies have the greatest potential for upgrades.

There were several upgrades in the fourth quarter including HCP Inc., Marsh & McLennan Cos. Inc. and Unum Group. Google Inc. was upgraded by S&P to AA from AA-while Jabil Circuit Inc. was raised from junk to BBB-.

Downgrades were also present in the fourth quarter and included Abbott Laboratories, Baxter International Inc. and Becton Dickinson & Co.

The S&P report also detailed some potential so-called fallen angels, or companies that are now investment grade but could be downgraded to junk. Those companies include Cliffs Natural Resources Inc., First Horizon National Corp., Genworth Financial Inc., Masco Corp., Molson Coors Brewing Co., Zions Bancorp, Avon Products Inc. and Big Lots Inc.

Those that could be upgraded from junk include the Gap Inc., Fidelity National Information Services Inc., Interpublic Group of Cos. Inc., Ford Motor Co. and Leucadia National Corp.

Analysts also said in the report that yields on bonds from companies rated BB were 1.6% higher than those of BBB rated bonds as of Dec. 31. This meant that a BBB rated company could have raised funds with an interest rate 1.6% lower than a BB issuer, according to the report.

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