Primary keeps eye on Dow; PPL Electric gives deal terms; secondary quiet; bank, broker CDS wider

By Andrea Heisinger

New York, Oct. 15 - The primary market for investment-grade bonds was increasingly quiet Wednesday, as syndicate desks watched the stock market and talked to potential issuers and investors.

The secondary was also quiet, with little activity or movement, even among companies and financial names reporting third-quarter earnings.

PPL Electric Utilities Corp. announced terms of a deal it priced Tuesday, with additional notes added Wednesday.

The Pennsylvania utility priced $375 million 7.125% five-year notes Tuesday at 99.91 to yield 7.142%, or Treasuries plus 412.5 basis points. The company added $25 million to that Wednesday, bringing the total to $400 million.

The bonds were seen slightly tighter in secondary trading Wednesday morning, a trader said.

Bookrunners were Barclays Capital Inc., BNP Paribas Securities Corp., Lazard Capital Markets LLC and Scotia Capital (USA) Inc.

Primary eyes Dow

Syndicate sources said Wednesday they were mostly watching the downturn of the stock market throughout the day and giving market condition updates to potential issuers and investors.

"We're just sitting here watching the screens," one market source said. "It's pretty ugly out there."

After Monday's rally following news of the Treasury's investment in banks, reality set in, and that tone faded, with the Dow down by market close Wednesday.

Then retail numbers were released Wednesday by the Commerce Department, and they weren't pretty.

Retail sales were down 1.2% for September, it was reported, with auto sales and manufacturing taking the biggest hit. This was the third consecutive month that retail sales were down.

This news, on top of steep drops in earnings from JPMorgan Chase & Co. and Bank of America Corp., led to speculation of another Federal Reserve rate cut at its meeting at the end of the month.

JPMorgan Chase reported third-quarter earnings of $527 million, which was down 84% from the $3.4 billion a year ago. The bank is also expecting reduced earnings throughout the next few quarters.

For now, the primary continues to sit and wait to see if any sort of window opens for issuance.

"We have some people looking from the sidelines, but no one's touching the market now," a source said. "It's just not looking good."

Yields have come down slightly, but not enough to entice issuers, he said.

The outlook does not look good for the rest of the week, a source said, predicting that it will be similar to Wednesday with everyone's eye on the stock market.

"It will probably be this way for a while," he said.

PPL Electric tighten slightly

The new 7.125% five-year notes from PPL Electric Utilities were seen slightly tighter Wednesday morning, at 410 bps bid, a trader said.

The notes priced at 412.5 bps.

PepsiCo seen unchanged

A trader said he didn't see bonds for PepsiCo move on Wednesday, a day after the beverage company announced it would cut 3,300 jobs amid a loss of sales.

The company's earnings came out a day before Coca Cola's, which reported better-than-expected profit for the third quarter, with revenue up 9%.

Secondary quiet on stocks

The tone in the secondary market mirrored that of the primary, with most watching the descent of the Dow throughout the day.

"Everybody's watching the stock market," a secondary source said. "The Dow's going lower and lower and lower. It got pretty quiet here this afternoon."

Banks, brokers wider

Bank credit-default swaps were generically unchanged to 45 bps wider Wednesday, a trader said.

Citigroup was seen out the most, at 28 bps wider, with Wachovia seen unchanged, prompting the trader to remark "so it did better."

Brokers were generally wider, with Morgan Stanley the widest at 70 bps to 240 bps bid, 260 bps offered.

Merrill Lynch was out the least, at 15 bps wider, with levels of 180 bps bid, 200 bps offered.

Goldman Sachs was in the middle of the pack at 55 bps wider with levels of 240 bps bid, 260 bps offered.

Ohio Power, iStar big movers

The day's biggest moves in the secondary came from commercial real estate company iStar Financial Inc. and utility Ohio Power Co.

Ohio Power saw its 6% notes due 2016 tighten more than 180 bps, a couple of days after being affirmed as a high-triple-B rated company by Fitch Ratings.

The same was not true for iStar, which saw its 5.95% notes due 2013 widen more than 100 bps. On Tuesday, Standard & Poor's put the company on Creditwatch with negative implications, warning of the increased likelihood that price declines in commercial real estate will exacerbate losses for lenders focused on this industry segment.

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