Aetna, Halliburton, OeKB price, Lehman news dampens primary; Lehman bonds plunge in trading

By Andrea Heisinger and Paul Deckelman

New York, Sept. 9 - Leaving a day for the market to settle after the weekend's mortgage lender news, Halliburton Co., Aetna Inc. and Oesterreichische Kontrollbank AG all braved the primary market Tuesday.

Halliburton and Austria's OeKB both priced more than $1 billion, while Aetna did a comparatively smaller deal.

The market ended on a less-than-constructive note Monday, and despite a decent open, was down again by the end of the day Tuesday on the news from troubled Lehman Brothers Holdings Inc.

In the secondary market, advancing issues led decliners by a ratio of six-to-five, while overall market activity, reflected in dollar volumes, rose by 47% from Monday's pace.

Spreads in general were seen wider, in line with lower Treasury yields; for instance, the yield on the benchmark 10-year issue fell 10 basis points to 3.57%.

Lehman Brothers Holdings Inc.'s bonds widened out precipitously, as did its debt-protection costs, in line with a sharp fall in the company's shares after talks with potential investor Korea Development Bank ended with apparently nothing accomplished.

Among recently priced issues, credits such as Halliburton, Consumers Energy Co. and Barrick Gold Corp. were seen trading around their respective issue prices, though with not much volume.

Halliburton does two-tranche deal

Oilfield services company Halliburton priced $1.2 billion in two tranches.

The $400 million of 5.9% 10-year notes priced at 99.984 to yield 5.902% with a spread of Treasuries plus 230 basis points.

The $800 million of 6.7% 30-year notes priced at 99.999 to yield 6.7% with a spread of Treasuries plus 250 bps.

There was no official price talk for the issue, a source said.

Citigroup Global Markets Inc., HSBC Securities, and RBS Greenwich Capital were bookrunners.

Aetna prices upsized issue

Healthcare benefits company Aetna priced $500 million in 6.5% 10-year senior notes at 99.716 to yield 6.539% with a spread of Treasuries plus 295 bps.

The size was increased from $350 million, a source said.

"It went well," he said. "It was well overbooked. There was a lot of interest in it."

The strong demand was the reason for the size increase, he said.

The issue managed to price before the worst of the Lehman Brothers headlines hit.

Aetna went into the market with the knowledge that they are a well-known healthcare name, which protected them from the increasingly rocky market conditions, and allowed them to price on the tight end of talk, the source said.

"That went in with that in their back pocket," he said. "That's why they went today."

Banc of America Securities LLC, Citigroup, and J.P Morgan Securities Inc. ran the books.

OeKB offers $1.75 billion

The Austrian government-owned financer priced $1.75 billion of 3.125% three-year global notes at 99.937 with a spread of Treasuries plus 82.4 bps.

Goldman Sachs & Co., J.P. Morgan and UBS Investment Bank were bookrunners.

Lehman weighs on market

The increasing number of negative headlines throughout the day about Lehman Brothers dragged down the primary market tone Tuesday.

By day's end, the investment bank's credit-default swaps had widened by 50% amid talk that it may not be able to raise the capital to stay afloat. The company's shares had also plummeted to a 10-year low.

The news will likely cause hesitation among those names wanting to get into the market Wednesday, a source said, and casts doubt on just how busy the day will be.

"It's hard to say with the headlines late in the afternoon," he said of Wednesday's issuance. "It [Lehman] is what's going to determine the rest of the week, if not the rest of the month."

The investment bank's status is similar to the previous drama with Bear Stearns and, more recently, Fannie Mae and Freddie Mac.

The latter's bailout by the Treasury Department offered some hope on Monday that the worst of the troubles with financial names were over for the time being.

After one day of the primary market receiving a boost, and predictions of the stream of new issues that the bailout would result in, it's back to a day-by-day scenario.

"We're going to have to wait until the open tomorrow to see," a source said.

"Now, after people saw Aetna pricing, the negative headlines come out."

A bottleneck of potential issuers is building, and could be pushed back into the coming months.

"They maybe are not for the new issue market in September," a source said. "There's no real reason to come into the market now unless they really need the money."

Lehman a big loser

Lehman Brothers' bonds widened out substantially on renewed investor angst over the fourth-largest Wall Street investment bank - considered the weakest of the majors and, some warn, the one most like to turn into the next Bear Stearns.

A market source saw its 6.50% notes due 2017 having ballooned out by 35 bps on the session to 497 bps over comparable Treasuries, on very active volume that included some large-block trades will in excess of $1 million.

Another source quoted those bonds at 499 bps over, versus 457 bps over at the start of the week.

A trader said that Lehman's bonds were "just wide - I don't even know if they were bid." Lehman, he said, was "pretty much the focus - they got pretty weak as the day progressed."

He said that investors were "just trying to figure out what's going on" with Lehman, which is seen as having to badly raise capital - but without an obvious means of doing so, at least right now.

The bonds' spreads rose markedly in line with a freefall in the company's New York Stock Exchange-traded shares, which slid by $6.36, or 44.95%, to end at $7.79. Heavy volume of 383 million shares was more than six times the usual turnover.

The shares and bonds slid as news reports indicated that the company's talks with Korea Development Bank - which investors had hoped would make a major capital investment in Lehman - had ended with no such commitments being made, especially after Korean bank regulators cautioned the state-run bank against making a large Lehman investment.

In response to growing investor concern about what it plans to do, Lehman said it would have an announcement Wednesday morning of "key strategic initiatives," and is also unveiling its quarterly results, pushing the numbers up by a week.

While Lehman was the key driver in the financial markets' retreat on Tuesday - wiping away the sense of euphoria experienced in some quarters Monday on news of the federal bailout of Fannie Mae and Freddie Mac - the trader also noted that "you still have people digesting the whole Fannie-Freddie thing."

Lehman problems push out CDS spreads

A trader watching the credit-default swaps market said that the problems of Lehman helped to push out debt-protection costs for major brokerage names anywhere from 10 bps to 115 bps. The latter widening, of course, was Lehman's CDS cost, which he said had ballooned out to 435 bps bid, 460 bps offered.

He said that big-bank CDS costs were 5 bps to 10 bps wider on average - but troubled thrift giant Washington Mutual Inc.'s already swollen debt-protection costs moved out another 3 percentage points, with an up-front payment of 30% to 32% required, plus 500 bps annually.

New bonds trade near issue

Among the newly priced issues, a trader said that the Aetna 6.50% notes due 2018 were trading at 290 bps bid, 285 bps offered, versus the 295 bps over spread at which the insurance company had priced its upsized $500 million bond issue earlier in the day.

Among the non-financial names, another trader saw the new Halliburton 5.90% notes due 2018 at 225 bps bid, 223 bps offered, versus the 230 bps at which the company priced its $400 million of the bonds. As for the other half of that deal, he saw the $800 million of new 6.70% bonds due 2038 at 250 bps bid, 245 bps offered, versus their 250 bps spread at pricing.

Among issues which priced on Monday, he saw the new Consumers Energy 6 1/8% notes due 2019 at 247 bps bid, 242 bps offered, versus the 245 bps level at which the company had priced its $350 million of first mortgage bonds.

The Barrick Gold 7.50% bonds due 2038 traded at 330 bps bid, 320 bps offered, straddling the 325 bps level at which the $500 million of 30-year bonds had priced.

He saw Barrick's $500 million of 6.80% notes due 2018 at 318 bps bid, 313 bps offered, straddling their 315 bps spread at pricing, while the $500 million of 6.125% notes due 2013 widened slightly to 320 bps bid, 313 bps offered, versus a 315 bps spread at pricing.

Agrium Inc.'s new $500 million of 6.75% notes due 2019 traded at 313 bps bid, 309 bps offered, versus a spread at pricing of 310 bps.

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