OeKB prices ahead of Fed cut; Deutsche, ProLogis announce issues; April ends with near-record issuance

By Andrea Heisinger and Paul Deckelman

Omaha, April 30 - Many issuers waited Wednesday to see if the Federal Reserve would cut a key interest rate, while others like Oesterreichische Kontrollbank AG issued before an announcement was made.

The Fed did cut the Federal Funds rate by 25 basis points, which sources said was no surprise.

"It was exactly what everyone was expecting," a market source said. "We thought it would be a 25 point cut and there would be a pause [before the next cut], and that's exactly what they did."

Fed officials have said they will wait before cutting rates again, after doing so at all of their last seven meetings.

"It's not really going to change anything on our end," a source said.

The rest of the day was mostly quiet, ending a high-volume month of nearly $114 billion.

Action in April was dominated by the last week or two as financial names tried to raise capital after write-downs and earnings announcements, a source said.

Merrill Lynch & Co. alone priced nearly $7 billion in one day with two issues.

Wednesday's total couldn't compete with that.

OeKB priced $1 billion in 3.625% five-year global notes at 99.973 with a spread of Treasuries plus 53.9 bps.

BNP Paribas, Deutsche Bank Securities Inc. (London branch) and J.P. Morgan Securities Inc. were bookrunners.

Two for Thursday

Two other names announced issues, with sources close to the issues saying they are expected to price Thursday.

ProLogis announced a $350 million issue of 10-year senior notes.

Citigroup Global Markets Inc., Goldman Sachs & Co. and Greenwich Capital are bookrunners.

Deutsche Bank Contingent Capital Trust V announced an issue of perpetual trust preferred securities.

They will be priced at par of $25 and will be non-callable for 10 years.

Deutsche Bank, Citigroup, Merrill Lynch, Pierce, Fenner & Smith Inc. and Wachovia Capital Markets LLC are bookrunners.

Details of a $250 million issue from KfW were also announced Wednesday.

The German bank priced $250 million of 3.05% medium-term notes due 2009 via Greenwich Capital Markets.

A report soon to be released by Fitch Ratings analyses the first quarter of the year.

The healthy investment-grade issuance for the year to date was due in part to a recovery in financial names and strength on the industrial side.

Investment-grade industrial issuance has remained resilient through the credit crisis, according to the report.

It totaled $63.6 billion for the first quarter which was similar to the last quarter of 2007.

"The cost of borrowing, in fact, has remained quite favorable for highly rated industrials, in contrast to the spike in risk premiums on the speculative-grade side," analyst Eric Rosenthal wrote in the report.

Median coupons for investment-grade names have increased only slightly since early 2007 when they were 5.6%, compared with 5.9% for the first quarter of this year.

Investors have not backed off from industrial investment-grade names due to their strong balance sheets and cash reserves, according to the report. Their exposure to the global market provides some insurance against a slowdown in the U.S. economy.

Potential issuers have also had an incentive.

"For the issuers themselves, the opportunity to tap the debt markets at still attractive rates has made sense, given the uncertain economic outlook," Rosenthal said in the report.

Spreads wider

In the investment-grade secondary market Wednesday, advancing issues led decliners by an eight-to-five ratio, while overall market activity, reflected in dollar volumes, rose by about 25% from Tuesday's pace.

Spreads in general widened, as Treasury yields declined, with the yield on the benchmark 10-year issue, for instance, falling by 10 bps to 3.72%.

BofA weak, then rebounds

Bank of America's big new bond issue was seen initially trading weaker than the levels at which it priced on Tuesday; however the bonds had made up those early losses and finished up having tightened slightly.

A trader said that the new Bank of America bonds "were weaker this morning," with the new 5.65% notes due 2018 trading behind the 190 basis point level at which the bonds priced, and the new 4.90% notes due 2013 trading behind the 185 bps pricing spread.

However, the bonds came off those early lows with the five-years ending up at 183 bps bid, 178 bps offered, and the 10-years at 188 bps bid, 183 bps offered, each having tightened about 2 bps from where they had priced.

In general, he said that "with the Fed" scheduled to announce its rate-cut decision at mid-afternoon - as expected, the central bank lowered its benchmark lending rate one-quarter of a percentage point to an even 2% - "it was tough" to get much going ahead of the announcement. "Things felt a little bit better, but spread-wise, we gave up a little bit, and things got a little squishier at the end of the day, as the stock market sold off on us."

At another desk, Bank of America's established 4.875% notes due 2012 were seen having tightened by almost 30 bps to the 130 bps level, while JP Morgan Chase's 5.15% notes due 2015 came in by 35 bps to around the 140 bps level.

Among the non-financial names, Sprint Capital's 7.625% notes due 2011 were seen 40 bps tighter at 660 bps over Treasures.

In the credit-default swaps market, a trader saw debt-protection costs tightening pretty much across the board. Big bank CDS costs were 4 bps to 9 bps tighter, while Washington Mutual came in by 20 bps to 270 bps bid, 290 bps offered.

He also saw major brokerage firm's CDS costs about 2 bps to 7 bps wider.

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