KeyBank, Wachovia price issues; week totals more than $28 billion, falls short of predictions

By Andrea Heisinger and Paul Deckelman

Omaha, May 23 - KeyBank and Wachovia Corp. priced issues of notes Friday, surprising some who thought the week's issuance was done Thursday.

KeyBank priced $500 million two-year floaters at par to yield three-month Libor plus 200 basis points. Merrill Lynch, Pierce, Fenner & Smith Inc. ran the books.

Wachovia reopened its 5.5% five-year senior global medium-term notes to add $200 million.

The reopened notes priced at 100.13 to yield 5.468%, with Wachovia Capital Markets running the books.

Total issuance is now $3.05 billion including $2.85 billion priced April 22 at Treasuries plus 260 bps.

A strong start to the week led to a healthy total for the week despite the bulk of new issues coming into the market on a single day.

Monday was the busiest day of the week that totaled more than $28 billion (not including preferred stock issues), coming somewhat short of the $30 to $35 billion total sources had predicted last week.

The majority of the issues were under the $1 billion mark, but larger issues from European Investment Bank, Kraft Foods Inc., ArcelorMittal SA, PepsiCo, Inc. and Veolia Environnement priced.

A $2.7 billion issue of preferred stock from Bank of America Corp. priced, and one market source said it was the largest issue of preferreds done.

Spreads wider as activity slips

In the investment-grade secondary market Friday, advancing issues led decliners by around an 11-to-seven margin, while overall market activity, reflected in dollar volumes, plunged by nearly 64% from Thursday's already-slowed pace.

Despite the lead for the advancing issues, spreads in general were seen to have widened as Treasury yields fell, with the yield on the benchmark 10-year issue, for instance, declining by 7 bps to 3.84%.

Waiting for the coming week

Back in the primary, after a few weeks of high volume, and a month that will likely break a record for issuance, the market needs to take a breather, a source said.

Supply is still good, although there's not a huge backlog on hand.

"A lot of financials still need to issue, but they're waiting for next week," the source said.

"With some things not performing too well the last couple of days, everyone's holding off until after the weekend."

A market source said there are a moderate number of deals lined up for next week, although they were still sorting timing out with a couple of issuers.

The already short upcoming week will be made even more brief by issuers' reluctance to be the first one out of the gate after a market that has been somewhat dragged down leading into the long weekend.

"It's kind of a three-day week," one source said. "The new issue market has been a little soft and people are still wary. I think a lot of guys will be hesitant to issue Tuesday. It's a lot of things, not just one, that will affect this."

Widening spreads were one of the things the source referenced. Others blamed a couple of issues from later in the week, notably International Lease Finance Corp., that didn't perform well.

The consensus was that the week overall was a good one.

"It was busy, with good tone at the beginning of the week," a source said. "Then the Dow was down two days in the row and oil prices rose so I would say we went from strength to weakness. There are a lot of people who are going to be hesitant to be the first deal in [next week]."

The source said he was working on a couple of possible issues for the coming week, and others said the same.

Not many upcoming issues have been announced. Brazilian development bank Bndes is expected to price a benchmark-size issue of 10-year senior unsecured bonds via Morgan Stanley & Co. and Citigroup Global Markets Inc.

Most sources said there seems to be no stopping the flow of new issues other than a succession of underperforming issues or unstable market conditions.

"I think we're well on our way to a record month, and next week will just keep it rolling," a source said.

Holiday stills trading

A trader said that "nothing was going on today" with any of the recent issues, with many desks at best skeleton staffed ahead of the early close in the U.S. debt markets ahead of the Memorial Day holiday break.

"There were no deals, and no activity in the secondary market. 'It's basically been a non-event day."

He said that "all of the accounts, and all of the people who would be doing any trading were gone for the day, basically."

The trader said that he "didn't see much of anything trading today whatsoever" on Anheuser Busch Cos. Inc., whose stock jumped on published reports that the world's largest brewing company, Netherlands-based InBev NV, may make a $46 per share takeover offer for the iconic American brewer of Budweiser and Michelob beers.

He said that speculation the Dutch company could make a play for its somewhat smaller sector peer - the dominant beer company in the important United States market - had already been circulating around for a day or so, although he thought he had seen the St. Louis-based beer giant's debt-protection costs widen a little.

At another desk, however, a market source pegged the latter's 5.50% notes due 2018 as having ballooned out more than 30 bps on the session to 175 bps from 142 bps previously, apparently on investor fears that any sort of buyout transaction would be accompanies by an increase in leverage. The source saw several large-block round-lot trades during the session.

NiSource wider

Elsewhere, NiSource Finance Corp.'s $500 million of 6.80% notes due 2019 were seen having widened out by about 15 bps on the session to the 305 bps over level. Those bonds had priced on May 15 at 297 bps over comparable Treasuries, along with $200 million of 6.15% notes due 2013, which priced at 292 bps over.

Among other recently priced issues, Lexmark International Inc.'s 5.90% notes due 2013 were about 10 bps wider on the day, at the 300 bps level. The Lexington, Ky.-based maker of computer printing equipment had priced $350 million of the bonds on May 19, along with $300 million of 6.65% notes due 2018. Both issues priced at 285 bps over.

Genworth Financial Inc.'s $600 million of 6.515% notes due 2018 were seen trading at 267 bps over Treasuries; the company had priced the bonds at 265 bps over on May 19.

In the credit-default swaps market, a trader said that he saw debt-protection costs for big-bank paper widen out by 5 bps to 10 bps. He saw CDS costs for debt issued by major brokerage houses out by 10 bps to 20 bps.

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