Hectic day sees FedEx, Amgen, Reed Elsevier, McDonald's, Goldman, others price; Citi, Morgan Stanley wider

By Andrea Heisinger and Paul Deckelman

New York, Jan. 13 - The new deal market heated up Tuesday with sales from Amgen Inc., FedEx Corp., Reed Elsevier Capital Inc., McDonald's Corp., Goldman Sachs Group Inc., Oesterreichische Kontrollbank AG, Macquarie Bank, the Province of Ontario and African Development Bank.

The volume was somewhat surprising to one market source who said he was surprised at the number of deals, based on the morning's market tone.

In the secondary sphere on Tuesday, a market source said the widely followed CDX Series 11 North American high-grade index widened 4 basis points on the day to a mid bid-asked spread level of 218 bps from 214 bps on Monday.

Advancing issues led decliners by an eight-to-seven ratio. Overall market activity, reflected in dollar volumes, rose by 8% from Monday's pace.

Spreads in general were seen little changed, in line with essentially steady Treasury yields; for instance, the yield on the benchmark 10-year issue was little changed at 2.29%.

The continued parade of new deals was the market's major feature; some of the deals moved over into the secondary arena, particularly McDonald's Corp., which firmed smartly from the levels at which it had priced earlier in the session.

Among the more established names, Citigroup's bonds, and Morgan Stanley's were seen wider as investors digested the news that the beleaguered bank and the big brokerage had reached an agreement to combine their brokerage units in a joint venture.

Reed Elsevier sells $1.5 billion

Publishing and information provider Reed Elsevier Capital priced $1.5 billion in two tranches Tuesday.

The $550 million of 7.75% five-year notes priced at 99.744 to yield 7.813% with a spread of Treasuries plus 637.5 bps.

The $950 million of 8.625% 10-year notes priced at 99.612 to yield 8.684% with a spread of Treasuries plus 637.5 bps.

Barclays Capital Inc., Citigroup Global Markets Inc., HSBC Securities and J.P. Morgan Securities ran the books.

The deal went "really well," a source close to it said. Books were several times oversubscribed at about $5 billion, he said, with upwards of $3 billion interest in the 10-years and $1.8 billion in the five-years.

The popularity of 10-year notes seems to be holding, he said, with higher demand than for five- or 30-year maturities.

Price talk for the 10-year tranche was whispered at the low to mid-600 bps range, he said. This was in line with where both tranches ended up pricing, although at first it was thought the five-year tranche would have an inverted spread, he said.

Interest for the deal was built over time.

"There was a roadshow and a lot of marketing involved," he said.

McDonald's prices two tranches

Fast food giant McDonald's priced $750 million in two tranches Tuesday. The $400 million of 5% 10-year notes priced at 99.966 to yield 5.004% with a spread of Treasuries plus 270 bps.

The $350 million of 5.7% 30-year notes priced at 99.54 to yield 5.732% and also had a spread of Treasuries plus 270 bps.

Banc of America Securities LLC and J.P. Morgan Securities Inc. were bookrunners.

This issue was another from the day where the tranches' spreads priced flat, a source said.

Goldman sells FDIC bonds

Goldman Sachs Group priced another offering of notes backed by the Federal Deposit Insurance Corp. Temporary Liquidity Guarantee Program. The bank holding company was the first to issue the bonds at the end of November 2008.

This $3.5 billion of 1.625% notes due 2011 priced at 99.864 to yield 1.681% with a spread of Treasuries plus 95.1 bps.

Goldman Sachs & Co. ran the deal.

FedEx prices $1 billion

Shipping company FedEx priced $1 billion of notes in two tranches, with a full term sheet to be available Wednesday, a source said.

The $250 million of five-year notes priced at 737.5 bps, while the $750 million of 10-year notes priced at Treasuries plus 800 bps.

SunTrust Robinson Humphrey, Goldman Sachs, J.P. Morgan Securities and Morgan Keegan & Co. Inc. ran the books.

Amgen offers two tranches

Amgen, the global biotechnology company, priced $2 billion of senior notes in two tranches Tuesday.

Full terms were not released by the bookrunners before press time.

The $1 billion of 10-year notes priced at 345 bps over Treasuries, as did the $1 billion of 30-year notes.

Goldman Sachs, Merrill Lynch, Pierce, Fenner & Smith Inc. and Morgan Stanley & Co. ran the books.

OeKB prices $1.25 billion

Austria's export financing bank OeKB priced $1.25 billion of 1.875% three-year notes at 99.717 with a spread of Treasuries plus 89.2 bps.

Citigroup and J.P. Morgan Securities were bookrunners.

Australian government-backed issue sold

An issue priced under Rule 144A Tuesday by Macquarie Bank is backed by the Australian government.

The $2.5 billion of 2.6% three-year notes priced at par to yield 2.6% with a spread of Treasuries plus 149.9 bps.

Barclays Capital, J.P. Morgan Securities and Merrill Lynch were bookrunners.

Ontario offers $2 billion

It was day of sovereign issues, with Canada's Province of Ontario pricing $2 billion. The 2.625% three-year notes priced at 99.943 to yield 2.645% with a spread of Treasuries plus 155.5 bps.

HSBC Securities (USA) Inc., J.P. Morgan Securities Ltd. and Toronto-Dominion Bank were bookrunners.

Development Bank does $1 billion

African Development Bank priced $1 billion of three-year notes Tuesday, a market source said.

The AAA rated notes priced at 91.5 bps over Treasuries.

BNP Paribas Securities, Goldman Sachs and Citigroup were bookrunners.

Day's volume surprises

It was assumed Tuesday would be busy, but not as much as it turned out to be, a source said after the market close.

"I was a little surprised at the amount of issues, how busy it was," a market source said.

After the respectable amount of deals that priced Monday, it was expected Tuesday would also see healthy volume, he said, although overnight conditions threatened this.

"This morning felt like Monday felt," a source said, referring to the somewhat depressed market tone.

"Asia did badly overnight, and things didn't look good this morning."

He added that the surprising amount of deals wasn't a bad thing, and that syndicate desks would take all they could.

The remainder of the week will likely look like last week did, with issuance tapering off.

Friday will likely be mostly dead, the source said, due to the early market close ahead of the Martin Luther King holiday weekend.

There may be a couple of bond sales lingering on the calendar, he added.

McDonald's satisfies investor appetites

In the secondary market, a trader said that "people were concentrating on the Staples Inc. deal [which priced Monday], and the McDonald's deal, and that's been pretty much it."

The trader saw both tranches of the new McDonald's issue having moved solidly upward when they were freed for secondary dealings.

The fast-food giant's 5% notes due 2019 had tightened to 253 bps bid, 250 bps offered, from the 270 bps over comparable Treasuries at which the $400 million of 10-years had priced.

He also saw the company's $350 million of new 5.70% bonds due 2039 at 260 bps bid, 255 bps over, also versus a 270 bps spread at issue.

Among McDonald's existing bonds, a market source quoted its 5.30% notes due 2017 at 225 bps over.

None of the day's other new deals had yet made it to the secondary, a trader said.

Staples' star-turn

Among the bonds which priced on Monday, a trader saw the new Staples 9.75% notes due 2014 having firmed solidly to 103.5 bid, 104 offered. That was well up from the par bid level at which the Framingham, Mass.-based office-supplies retailer had priced its $1.5 billion of the bonds on Monday.

Norfolk Southern tightens up

Another gainer left over from Monday was Norfolk Southern Corp.'s 5.75% notes due 2016. The Norfolk, Va.-based railroad transportation company priced $500 million of the bonds at 400 bps over; on Tuesday those bonds were seen having tightened to 390 bps bid, 380 bps offered.

Indiana Michigan straddles pricing level

Indiana Michigan Power Co.'s $475 million of new 7% notes due 2019 were seen by a trader offered at 470 bps over. The utility had priced those bonds at 475 bps over on Monday; the trader estimated a level of 475 bps bid, 470 bps offered in trading Tuesday.

Berkshire widens out

A significant exception to the general rule Tuesday of tighter levels was Warren Buffet's favorite company, Berkshire Hathaway Inc. The Omaha-based holding company's $250 million add-on to its existing 5.40% notes due 2018 priced at 220 bps over; as of Tuesday afternoon, the new bonds stood at 242 bps bid, 237 bps offered.

Citi wider amid Morgan talks

A trader said that Ctitgroup "was wider by about 10 to 15 [bps] on the news that it was nearing a deal" with Morgan Stanley on combining their brokerage operations, but he saw most of the day's activity was in new-issuance - particularly industrial names and utilities.

The trader, who specializes in financial credits, noted that "my stuff has given up a lot over the last five trading days, from last Monday-Tuesday to now."

Last Monday and Tuesday, Jan.5-6, "we had a little followthrough from the year-end buying frenzy, and then gradually since then we've been giving it back."

For instance, he said, J.P. Morgan Chase & Co.'s 6.40% notes due 2038 had gotten as tight as 225 bps during the surge early last week, but were seen Tuesday afternoon trading at 280 bps over. "In a week's time, they've given up 60 bps."

Another market source saw Citigroup's 6.125% notes due 2018 having widened by as much as 40 bps on the day to the 425 bps level. Citi's 8.30% bonds due 2057 were seen having widened to about 820 bps, while its 6.125% notes due 2018 were quoted at a wider 425 bps. Among its somewhat shorter paper, Citi's 4.125% notes due 2010 traded at 372 bps over, while its 5.125% notes due 2014 were at 476 bps over.

The source saw Morgan Stanley's 5.25% notes due 2012 some 40 bps out, at about the 575 bps range. Its 6% notes due 2015 moved out to 635 bps over.

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