Eli Lilly, Coca-Cola, PG&E, KfW, Cargill, State Street, Mississippi Power price; Lilly tightens, GE Capital weaker

By Andrea Heisinger and Paul Deckelman

New York, March 3 - A soft market tone continued Tuesday, but did not stop names such as Eli Lilly & Co., Coca-Cola Co., Pacific Gas & Electric Co., KfW, Cargill and Mississippi Power Co. from offering bonds.

Another issue backed by the Federal Deposit Insurance Corp. was priced, this time from State Street Corp.

In the secondary sphere on Tuesday, a market source said the widely followed CDX Series 11 North American high-grade index was 3 basis points wider on the day at a mid bid-asked spread level of 242 bps versus 239 bps on Monday.

Advancing issues remained behind decliners, by a nine-to-seven ratio.

Overall market activity, reflected in dollar volumes, rose 47% from the levels seen on Monday.

Spreads in general were marginally tighter on Tuesday as Treasury yields rose modestly; for instance, the yield on the benchmark 10-year note widened by 2 bps to 2.88%

There was busy trading in some newly priced issues, with the Eli Lilly issue tightening notably. Coca Cola, on the other hand, was only slightly tighter than the issue price on its tranches.

Among the financials, General Electric Capital Corp. continued to weaken.

Coca-Cola prices two tranches

Coca-Cola Co. sold $2.25 billion of senior notes in five- and 10-year tranches. The deal was talked at benchmark size.

The $900 million of 3.625% five-year notes priced at 99.545 to yield 3.725% with a spread of Treasuries plus 185 bps.

This was at the tight end of price talk, which was the 190 bps area, a market source said.

The second tranche was $1.35 billion of 4.875% 10-year notes priced at 99.077 to yield 4.993% with a spread of Treasuries plus 205 bps. This was on par with price talk of the 205 bps area, the source said.

The Atlanta-based beverage company is using proceeds to repay commercial paper.

Banc of America Securities LLC, Citigroup Global Markets and HSBC Securities were bookrunners.

The offering was several times oversubscribed, a source close to the sale said.

The five-year tranche was "pretty much north of $3.25 billion," he said, putting it at more than three times oversubscribed. The 10-year book totaled $3 billion, he said, making it a little more than two times oversubscribed.

Both tranches were "hard to talk because of the market coming into today," the source said.

Bookrunners used the PepsiCo Inc. issue of five-year notes priced Feb. 25 at Treasuries plus 180 bps as guidance.

"We used Pepsi, and thought Coke should trade better than Pepsi," he said.

Price talk for the Coca-Cola five year was begun "near or around the high 100s," he said, while the 10-year tranche was initially in the low 200s.

Eli Lilly offers $2.4 billion

Pharmaceutical company Eli Lilly offered $2.4 billion of bonds in three tranches in a deal that took most of Tuesday to price.

The $1 billion of 3.55% three-year bonds priced at 99.898 to yield 3.586% with a spread of Treasuries plus 230 bps.

A $1 billion tranche of 4.2% five-year notes priced at 99.955 to yield 4.21% with a spread of Treasuries plus 237.5 bps.

The final tranche was $400 million of 5.95% notes due 2037 sold at 99.019 to yield 6.023% with a spread of Treasuries plus 240 bps.

The company, based in Indianapolis, plans to use the proceeds partly to repay commercial paper issued in connection with the acquisition of ImClone Systems Inc. in late 2008.

Bookrunners were Credit Suisse Securities, Deutsche Bank Securities and UBS Investment Bank.

State Street sells FDIC notes

Financial holding company State Street sold $1.5 billion of notes backed by the FDIC.

It was one of the few FDIC-backed deals done recently, and the only one not from one of the higher profile financial giants like JPMorgan Chase, Bank of America Corp. or Goldman Sachs Group Inc.

The Boston-based company priced the 2.15% notes due 2012 at 99.856 to yield 2.198% with a spread of Treasuries plus 88 bps.

Banc of America Securities and Goldman Sachs & Co. ran the books.

KfW sells $4 billion

Germany's KfW priced $4 billion in 3.5% five-year notes at 99.973 early Tuesday.

The government-owned bank is based in Frankfurt.

Credit Suisse Securities, J.P. Morgan Securities and Morgan Stanley & Co. ran the books.

PG&E unit upsizes deal

Pacific Gas & Electric, a unit of San Francisco-based PG&E Corp., sold an upsized $550 million of senior notes.

It was increased slightly from $500 million.

The 6.25% 30-year notes priced at 98.761 to yield 6.343% with a spread of Treasuries plus 270 bps.

The company plans to use the proceeds to repay outstanding commercial paper and capital expenditures.

Barclays Capital Inc., BNP Paribas Securities Inc. and UBS Investment Bank ran the books.

Mississippi Power does small sale

Mississippi Power priced a $125 million issue of 5.55% 10-year senior notes at 99.306 to yield 5.642% with a spread of Treasuries plus 275 bps.

The Gulfport, Miss.-based unit of Southern Co. plans to use the proceeds to repay $40 million in outstanding floaters and for short-term debt.

Cargill prices 10-year notes

Grain and agricultural products company Cargill sold $450 million of 7.35% 10-year notes at 99.86 with a spread of Treasuries plus 450 bps. The company is based in Minnetonka, Minn.

A source close to the deal said this issue was overshadowed by the 10-year bonds sold by Coca-Cola.

"It was hard to get people to focus on this 10-year," he said.

Bookrunners for the issue were Citigroup Global Markets Inc., J.P. Morgan Securities and RBS Greenwich Capital.

Primary to stay active

A skittish start to the week, including a snowstorm and further bailout of American International Group, continued Tuesday but the market tone improved slightly, a syndicate source said.

"Going into the week, Monday was really bad and the market was soft today too," he said, adding that it was a combination of factors.

The soft tone hasn't deterred issuers, with several high-profile industrial names and utilities pricing debt.

The pace is set to continue for the remainder of the week, the source said.

"Here and away, the rest of the week looks busy," he said. "We still have a few things on our calendar."

Lilly bonds tighten from issue

When the new Eli Lilly bonds were freed for secondary dealings, a trader saw the pharmaceutical giant's 3.55% notes due 2012 having firmed to a spread over comparable Treasuries of 215 bps bid, 210 bps offered, in from 230 bps over when the issue priced.

Its 5.95% bonds due 2037 were offered at 225 bps over, though with no bid seen, versus the 240 bps at which the bonds had priced.

The new 4.20% notes due 2014, which had priced at 237.45 bps over, were not seen in Tuesday's secondary.

Not much fizz to new Coke bonds

Coca-Cola's new bonds, in contrast, tightened only modestly from their issue levels, with its 3.625% notes due 2014 at 180 bps bid. 175 bps offered, not too far from the 185 bps level at which the issue had priced.

The other half of that deal, the 4.875% notes due 2019, held in at 199 bps bid, 195 bps offered, versus the 205 bps at which the tranche had priced.

Pacific Gas seen calm

Pacific Gas & Electric's new 6.25% bonds due 2039 were also little changed from their 270 bps over issue spread, quoted later at 267 bps bid, 264 bps offered.

FPL has power surge

FPL Group Capital Inc.'s new $500 million of 6% notes due 2019 were quoted by a trader at 295 bps bid, 290 bps offered. The Juno Beach, Fla.-based electric producer had priced those bonds at 310 bps over on Monday.

Recent Chevron bonds widen out

Among other recently priced issues Chevron Corp.'s 3.45% notes due 2012 were quoted at 174 bps over; that was out by 14 bps from Monday's levels, but well in from 195 bps over level at which the San Ramon, Calif. -based oil major priced that $1.5 billion of bonds last Thursday, as part of a three-part, $5 billion mega-deal.

Chevron's 3.95% notes due 2014 were meanwhile at 183 bps bid, 21 bps wider on the day, but likewise still tighter than the 195 bps over pricing level at which the $2 billion of bonds had priced.

The third leg of that deal, the $1.5 billion of 4.95% notes due 2019, which had priced at 195 bps over, was not seen trading on Tuesday,

Noble does nobly

Out of that same sector, a market source saw Noble Energy Inc.'s 8.25% notes due 2019 at 525 bps over, well in from the 600-plus area at which the bonds were quoted on Monday. The Houston-based energy exploration and production company's $1 billion of bonds were once more inside of the 550 bps over level at which they had priced on Feb. 24.

Financial names seen easier

A trader said that among the financial issues, "things were generically a little weaker." He said that it was "not a violent move," but Goldman Sachs Group Inc.'s 7½% notes due 2019 were trading at close to 500 bps over, out from recent levels.

He saw American International Group Inc. paper "kind of holding in - it improved a little [Monday] on the news" that the federal government would extend another $30 billion of bailout cash to the beleaguered New York -based insurance giant, "and then it held in at its levels there."

However, he said that GE Capital Corp. "is weaker," with its 5.625% notes due 2018, which started the day at 490 bps over, had widened out by the end of the session to 590 bps bid, 570 bps offered, "which kind of dominated things."

GECC's 3% notes due 2011, recently issued under an FDIC guarantee, were one of the busiest issues on the session, with over $70 million traded and the bonds around the 73 bps level.

Financial CDS measures widen out

A trader who watches the credit-default swaps market said the cost of insuring holders of big-bank paper against a possible default, was anywhere from 5 bps to 15 bps wider on the day.

He saw brokers' bonds debt-protection costs meanwhile also 5 bps to 15 bps wider.

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