Archer Daniels, Colonial BancGroup, Hartford, Biogen price; negative headlines end micro-rally

By Andrea Heisinger and Paul Deckelman

Omaha, Feb. 28 - The new deal pace slowed slightly Thursday, but the investment-grade market still saw a healthy volume of issues price from Archer Daniels Midland Co., Colonial BancGroup, Inc., Hartford Financial Services Group, Biogen Idec, Inc. and Toyota Motor Credit Corp.

In the investment-grade secondary market Thursday, advancing issues led decliners by a nearly two-to-one ratio, while overall market activity, reflected in dollar volumes, was up about 9% from Wednesday's levels.

Much of the focus in the generally easier market remained with the recently priced new deals. While some, such as Pacific Gas & Electric Co., Computer Sciences Corp. and Avon Products Inc., were able to hold their own or, as in the case of Avon, actually firm a little, others, such as McDonald's Corp. and Clorox Co. went along with the general widening out trend.

The big loser on the day was Sprint Nextel Corp. and its Sprint Capital Corp. funding arm. Sprint bonds widened precipitously after Sprint - nominally an investment-grade credit, for the moment - suffered the indignity of being dropped to junk bond status by Fitch Ratings, after posting a nearly $30 billion quarterly loss as a result of last year's merger of the then-Sprint Corp. and Nextel Communications Inc., and disclosing that it has had to draw down most of its $3 billion credit facility. One of the other major ratings agencies meantime was eying Sprint for a possible downgrade out of high-grade and into junk bond territory, and the third moved a step in that direction by downgrading its outlook.

Hartford brings $500 million

The Hartford priced $500 million 6.3% 10-year senior notes at 99.997 to yield 6.3% with a spread of Treasuries plus 262.5 basis points.

They priced in line with talk of 262.5 bps, a source close to the deal said.

The issue went well despite a snag in the middle of its sale.

"It was a little challenging after Bernanke's comments," the source said. "The issuer was still in it, though."

Bookrunners were Goldman Sachs & Co., J.P. Morgan Securities Inc. and Wachovia Capital Securities LLC.

ADM sells at tight end

Archer Daniels priced $700 million of 5.45% 10-year senior notes at 99.998 to yield 5.45% with a spread of Treasuries plus 175 bps.

This was on the tight end of price talk of 175 to 180 bps, a source close to the issue said.

Banc of America Securities LLC, Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. were bookrunners.

Colonial matches talk

Colonial priced $250 million 8.875% 30-year subordinated notes at par of $25.

They are non-callable for five years and priced in line with talk of 8.875% area, a source close to the offering said.

Citigroup, Lehman Brothers Inc., Morgan Stanley & Co. Inc., UBS Investment Bank and Wachovia were bookrunners.

Biogen brings $1 billion

A $1 billion, two-tranche issue from Biogen priced after being announced Tuesday and having some hiccups making its way to the market.

The $450 million of 6% five-year notes priced at 99.886 to yield 6.027% with a spread of Treasuries plus 325 bps.

The $550 million of 6.875% 10-year notes priced at 99.184 to yield 6.990% with a spread of Treasuries plus 325 bps.

Some negative news about one of the company's medications stalled pricing, and according to some market sources, caused the yield to increase significantly.

Unofficial price talk widened to 330 bps because of the negativity, a market source said.

After trading began, the notes were seen at 315 bps, the source said.

There was no official price talk because the company does not really have outstanding notes to go off, a source close to the deal said.

"It was kind of a price discovery process," he said. "There was really no debt or CDS to go off of."

Toyota Motor Credit priced $100 million of floating-rate notes due 2010 at par to yield three-month Libor plus 3 bps.

Lehman Brothers was agent.

Rally halts

This was likely the end of issuance for the week, sources said, with nothing on the calendar for Friday.

Negative headlines may have put an end to consecutive days of stability.

"I wouldn't say there was a rock-solid tone to begin with today, but things went out wider," a source said.

"We kind of erased the micro-rally we've been having the past four days. It was pretty much erased in one day."

There is a decent calendar for the coming week, which combined with a remaining backlog should mean about the same volume as this week, sources said.

New issues present a mixed bag

A trader said that the market was generally easier, with "spreads out about 5 to 10 bps, or 3 to 5," although some of the recently priced issues did seem to hang around their pricing levels with little deterioration.

He said the new Pacific Gas & Electric 5.625% notes due 2017 "widened out initially, but then kind of held in there." He said the bonds - which had priced Tuesday at 155 bps over comparable Treasuries - went out on Wednesday at 155 bps bid, 151 bps offered. While they were offered Thursday morning at 154 bps, without a bid, by the day's end they were around 156 bps bid, 153 bps offered. Considering the generally softer market, he said, "they held in there pretty well."

On the other hand, "the McDonald's paper got a little weaker," in line with the easier market. He saw the fast-food giant's 5.35% notes due 2018, which had priced at 148 bps over Treasuries on Tuesday, out as far as 157 bpd bid, 154 bps offered on Thursday. The 6.335% bonds due 2038 were seen at 174 bps bid, 170 bps offered, versus their 168 bps spread at pricing. However, the 4.30% notes due 2013 seemed to be doing better at 140 bps bid, 135 bps offered, versus their 145 bps pricing spread.

The new Clorox 5% notes due 2013, which priced at 217 bps over on Wednesday, was trading at 224 bps bid, 220 bps offered on Thursday, although activity in the credit was fairly thin.

The trader saw Computer Sciences' 6.50% notes due 2018, which had priced on Wednesday at 270 bps over, trading around 271 bps bid, 267 bps offered, while its 5.50% notes due 2013, which priced at 272 bps over, in an unusual inversion of the usual yield curve, held steady at 272 bps bid, 268 bps offered.

Avon's 4.8% notes due 2013, which had priced at 195 bps over on Wednesday, got as good as 192 bps bid, 185 bps offered Thursday, while its 5.75% notes due 2018, which also priced at 195 bps over, were offered at 187 bps Thursday, but with no bids seen.

Sprint dives as rating cut to junk

Back among the established issues, market participants were watching the first step in the creation of the newest fallen angel, as Fitch Ratings downgraded Sprint Nextel's issuer default measure to BB+ from BBB- previously. For the moment, the Overland Park, Kans.-based wireless telecommunications provider's bonds are still precariously considered investment grade, carrying a Moody's Investors Service rating of Baa3 and a Standard & Poor's rating of BBB-. But S&P put Sprint on CreditWatch with negative implications, while late in the day Moody's lowered its outlook to "negative" from "stable."

The ratings cut, as well as the company's earlier announcement of a massive quarterly loss and its having to tap into its credit line to meet expenses combined to push its bonds sharply lower, with the Sprint Capital 7.625% notes due 2011 - which on Wednesday were still par bonds - tumbling more than 9 points Thursday to the 91 area in very active size trading. The bonds' spread versus Treasuries was seen to have ballooned out to 945 bps Thursday afternoon from 526 bps at Wednesday's close. A market source at another desk quoted those bonds as wide as 992 bps over, while situating Sprint Capital's 6.90% notes due 2019 out 679 bps.

Another market source saw the Sprint Capital 8.375% notes due 2012 zoom out to 843 bps over, about a 380 bps widening from prior levels, while Sprint Nextel's 6% notes due 2016 were about 230 bps wider at 658 bps.

Market participants agreed that Sprint's bonds were among the most actively traded issues of the day. Although they remain nominally investment-grade instruments, several junk traders also said they were well familiar with the credit and had already been trading some Sprint paper around. One quoted the company's 7.375% notes due 2015 at 81 bid, 82 offered - he noted that those bonds had originally been junk bonds, having been issued by the old Nextel before it was absorbed into Sprint, and "they may once again be junk" if the other ratings services follow Fitch's lead.

Another trader said the bonds were "down pretty substantially, by 5, 6, even 8 points" with the 7.375s "fairly actively traded," in an 80.5-81 bid context.

Another market source saw that particular issue drop as low as a 79 bid level before ending at 81 - calling that a 10 point drop on the session in active trading. The company's 8¾% bonds due 2032 were seen as even bigger losers, down as much as 13 points to end around 80.

In the credit-default swaps market, the cost of protecting holders of Sprint debt against a possible default was seen to have widened out sharply, along with the cash bonds. Its five-year CDS spreads widened to 585 bps on Thursday, over 200 bps out from Wednesday's finish at 370 bps.

Sprint's NYSE-traded shares meanwhile swooned 86 cents, or 9.61%, to end at $8.09. Volume of 126 million shares was about four times the average daily handle.

Sprint got the snowball rolling downhill with its announcement that it had lost $29.45 billion, or $10.36 per share, in the fourth quarter, most of it due to huge writedowns taken in connection with last year's merger between Sprint and Nextel, which produced the third-largest U.S. wireless carrier behind AT&T Inc. and Verizon Communications Inc. - but one which still lagged considerably behind its larger rivals, beset by integration problems, technical troubles and what some critics have called a nebulous marketing strategy. In the year-ago period, the company had turned a $261 million profit, or 9 cents per share.

Sprint reported a net loss of 108,000 subscribers for the quarter; while it saw an increase in the number of customers using its Boost prepaid brand and via wholesale channels, that only partly offset the loss of 683,000 postpaid, i.e., billed, subscribers, who are considered by the telecom industry to be more lucrative than the prepaid customers, since they typically spend more on data services like texting and web surfing. Sprint warned that it expects to lose a further 1.2 million postpaid customers in the current quarter and around the same amount in the second quarter.

Sprint also said that it had drawn $2.5 billion from its revolving credit line in order to improve its financial flexibility, leaving it with $500 million of remaining availability.

In junking Sprint, Fitch said the downgrade reflects its expectations that the company's financial metrics and operating results for 2008 will be much worse than expected.

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