Meccanica offers bonds, Korea Gas talks five-years; Wisconsin Power, Interstate stay firm

By Andrea Heisinger and Paul Deckelman

New York, July 8 - New deals were scarce again Wednesday, as Meccanica Holdings USA Inc. quietly sold two tranches of bonds.

The sale followed the Treasury's auction of 10-year notes that sparked a rally, a market source said.

Korea Gas Corp. opened the books and released talk for its sale of five-year bonds following a road show.

The Meccanica sale was one of the only firm ones for the week and will likely be the last significant one as the coming two days are expected to be "very quiet," as a source said.

Among the established issues in the secondary arena on Wednesday, a market source said the CDX Series 12 North American high-grade index widened by 2 basis points to a mid bid-asked spread level of 145 bps.

Advancing issues - which on Tuesday had led decliners for an eighth consecutive session - continued to more than hold their own on Wednesday, again by a slightly less than three-to-two margin.

Overall market activity, reflected in dollar-volume totals, rose 8% from Tuesday's pace.

Spreads in general were seen generally wider, in line with lower Treasury yields; for instance, the yield on the benchmark 10-year government note fell Wednesday by 15 bps to 3.30%.

"It seemed like it was all Treasuries today," a trader said, adding: "They raced right up. People are thinking about deflation. The long bond was up 2 points."

Tuesday's new issues from Wisconsin Power & Light Co. and Interstate Power & Light Co. were seen still essentially around the levels they held late in that session, which in turn were tighter than the two bond issues' respective spreads over comparable Treasuries at which those bonds had priced.

Meccanica offers two tranches

Meccanica Holdings USA sold $800 million of notes in two tranches at around 4 p.m. ET, a source close to the deal said.

The $500 million of 6.25% 10-year notes priced at Treasuries plus 305 bps. They were talked in the morning at 300 bps, a source said, and priced wide of that.

The $300 million of 7.375% 30-year notes priced at Treasuries plus 330 bps.

The 30-year notes were added based on reverse inquiries, the source said.

Bookrunners were Banc of America-Merrill Lynch, Citigroup Global Markets, J.P. Morgan Securities and Morgan Stanley & Co. Inc.

The U.S. branch of Rome, Italy-based industrial group Finmeccanica is based in Washington, D.C.

It was the first time the parent company had issued through the Meccanica Holdings subsidiary, the source said, adding that it has priced other deals through different entities and in other currencies.

He called it a "pretty solid" trade. There were reports in the morning of about $2 billion on the books already, a source away from the sale said.

It was essentially in the primary market without any competition.

"There weren't any other [deals] out there that I know of," a source said in late afternoon.

Tone turns in afternoon market

The stale tone of the past couple of days was turned Wednesday afternoon following the sale of 10-year Treasury notes, a source said.

"It got interesting in the afternoon," he said. "After 1 [p.m.] we saw kind of a rally in Treasuries."

The Meccanica sale was done well after that, but the shift in tone didn't seem to affect its pricing or the level of interest in it, a source close to that sale said.

This deal was also one of the only firm ones for the week from one of the major syndicate desks.

"Otherwise, we have nothing set for the rest of the week," a source said. "It should be very quiet."

Korea Gas talks five-years

Korea Gas opened the books and released talk of Treasuries plus 400 to 420 bps for its $500 million offering of five-year bonds, a market source said.

Deutsche Bank Securities, J.P. Morgan Securities and Merrill Lynch & Co. are bookrunners for the Rule 144A and Regulation S deal.

A roadshow began on Monday in Los Angeles and Singapore, traveled to Hong Kong and New York on July 7 and concluded in Boston and London on July 8.

Proceeds will be used for general corporate purposes.

Korea Gas is a Bundang, South Korea-based energy firm.

New power names hold gains

A trader saw Wisconsin Power & Light Co.'s recently priced 5% notes due 2019 trading at 149 bps bid, 145 bps offer - slightly tighter than the 150 bps bid, 149 bps offered levels seen after those bonds broke on Tuesday, and further in from the 160 bps over level at which the company - a unit of Madison, Wis.-based electric and gas utility company Alliant Energy Corp. - had priced its $250 million of bonds earlier in Tuesday's session.

He also saw the 6.25% bonds due 2039 of Interstate Power & Light Co. - Wisconsin Power's corporate cousin, also being an Alliant unit - likewise a bit firmer at 184 bps bid, 181 bps offered, versus 186 bps bid, 182 bps offered in initial secondary dealing on Tuesday.

The company had priced its $300 million issue of paper - upsized from the originally shopped $250 million - earlier Tuesday at 195 bps over.

France Telecom is strong

Also among recently priced issues, France Telecom's big two-part issue was seen having firmed notably from the 195 bps over level at which the two tranches had priced on June 29.

The international communications company's $1.25 billion of 5.375% notes due 2019 were quoted having come in to 154 bps over. The bonds were actively traded, with over $45 million having changed hands by late in the afternoon.

Its $1.25 billion of 4.375% notes due 2014 were meantime trading at 156 bps over, with over $36 million traded on the day, although both issues were little changed on the session.

Oracle bonds active

Also seen active during the session were Oracle Corp.'s recently priced 3.75% notes due 2014. Although the bonds were not the most active high-grade issue as a market source had seen them on Tuesday, when over $60 million of the bonds had changed hands, volume was still a robust $30 million-plus.

The Redwood Shores, Calif.-based software maker's five-years were quoted as having firmed to a spread of 74 bps bid - in from the 105 bps bid level at which those bonds had traded on Tuesday, and well in from the 120 bps over level at which the company had priced its $1.5 billion of bonds on June 30, as part of a $4.5 billion three-part mega-deal.

A market source saw Oracle's $1.75 billion of 5% notes due 2019 even more active, with over $42 million traded, and saw them having narrowed to 122 bps over - a substantial tightening from 152 bps bid, 148 bps offered on Tuesday. Those bonds had originally priced at 155 bps over.

The source did not see much activity in the third leg of Oracle's troika, its $1.25 billion of 6.125% bonds due 2039. Those bonds had traded on Tuesday at 180 bps bid, 175 bps offered, in from the 185 bps level at which they had priced, also on June 30.

Alcoa seen improved

Apart from the new or recent deals, a trader said that the overall market seemed "slightly weaker" to him - although he noted that Alcoa Inc. "was better, post-earnings."

The Pittsburgh-based aluminum giant posted a third consecutive quarterly loss - but still beat Wall Street estimates by a large margin, aided by cost reductions.

Bank, brokerage CDS widen out

A trader who watches the credit-default swaps market said that the cost of insuring a holder of bonds from a major bank against a possible event of default was 2 bps to 5 bps wider, while CDS costs for the bonds of major investment banks were unchanged on the day.

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