Walgreen, Pacificorp, Entergy Arkansas issue; quiet week expected on bank earnings, market tone

By Andrea Heisinger and Paul Deckelman

Omaha, July 14 - The week began with a positive tone, prompting issues from Walgreen Co., Pacificorp and Entergy Arkansas, Inc.

By the market's close, conditions had slid, with sources saying there weren't many issues expected for Tuesday.

"It was a lot of positive followed by a whole lot of negative," a market source said.

In the secondary, advancing issues trailed decliners by a narrow margin, while overall market activity, reflected in dollar volumes, rose about 5% from Friday's restrained pace.

Spreads in general showed were seen widening, in line with sharply lower Treasury yields; for instance, the yield on the benchmark 10-year issue tightened by 10 basis points to 3.85%.

The new Pacificorp and Walgreen bonds were seen little changed in initial secondary dealings after their pricing.

Anheuser-Busch Cos. Inc.'s bonds were seen mostly lower on the news that the St. Louis-based brewer of the iconic Budweiser brand had agreed to be acquired by InBev NV.

Early optimism fades

The day's issues were announced on the heels of the news that mortgage lenders Fannie Mae and Freddie Mac would get assistance from the federal government.

By the time many of them priced, conditions had eroded due to a combination of factors including earnings announcements from some regional banks.

Walgreen priced $1.3 billion 4.875% five-year unsecured notes at 99.609 to yield 4.963% with a spread of Treasuries plus 175 basis points.

This was at the tight end of price talk of 175 to 180 bps.

The issue was "well-oversubscribed" a source said, adding that demand came in at more than $2 billion.

Another source commented that it got a "pretty good level."

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

Pacificorp upsizes

Pacificorp increased its issue from $700 million to $800 million first-mortgage bonds in two tranches.

The $500 million 5.65% 10-year notes priced at 99.443 to yield 5.674% with a spread of Treasuries plus 180 bps.

This was at the tight end of price talk of 180 to 185 bps.

The $300 million of 6.35% 30-year notes priced at 99.819 to yield 6.392% with a spread of Treasuries plus 192 bps.

J.P. Morgan, Lehman Brothers Inc., RBS Greenwich Capital and Wachovia Capital Markets were bookrunners.

Entergy Arkansas sells $300 million

Entergy Arkansas priced $300 million 5.4% five-year first-mortgage bonds at 99.993 to yield 5.401% with a spread of Treasuries plus 223 bps.

Bank of New York Mellon Capital Markets, Barclays Capital Inc. and J.P. Morgan ran the books.

It wasn't surprising to see two utilities coming into the market Monday, a source said. The week's issuance is expected to consist of industrial and utility names.

"Other than that, the big story was the slide in the regular commercial banks," he said. "I can't think of one name that didn't slide 10% or more."

The news about Fannie and Freddie, which developed over the weekend, put the market up a lot in the pre-open, but after that didn't have much of an impact, a source said.

Earnings seen keeping banks out

More earnings announcements are expected from banks this week, meaning they won't be issuing.

Halfway through the month, July has been low on issuance, a source said, with the trend expected to continue for the rest of the month.

Two sources said they have no new issues expected for Tuesday. Others said the rest of the week is expected to be quiet between the negative tone and earnings.

"The week started off OK, but then it all went in the crapper again," a source said. "We're not seeing anything for tomorrow."

New bonds trade near pricing spreads

When the new Pacificorp bonds 5.65% notes due 2018 were freed for secondary dealings, a trader said that they were trading at a spread versus comparable Treasuries of 182 bps bid, 177 bps offered, essentially anchored around their 180 bps over spread at pricing.

He also saw the new Pacificorp 6.35% bonds due 2038 wider by 1 bp at 193 bps.

The trader further saw the new Walgreen 4.875% notes due 2013 trading at 175 bps bid, 172 bps offered - not too different from the 175 bps spread at which the $1.3 billion of new bonds had priced.

New Alcoas tighten up

A market source saw the new Alcoa Inc. 6% notes due 2013 as having tightened about 10 bps on the session to just under 290 bps.

The Pittsburgh-based aluminum giant priced $750 million of the bonds on Thursday at 300 bps over, as part of a two-tranche deal which also saw the sale of $750 million of 6.75% bonds due 2038, which also priced at 300 bps over.

Another market source saw the company's 5.95% bonds due 2037 trading at 270 bps.

Bud bonds seen mostly off

A trader said that he saw Anheuser-Busch's 2037 bonds "around 10 [bps] better" than they had been last week, at 255 bps bid, 235 bps offered.

However, at another desk, a market source saw Bud's 4.38% notes due 2013 as having widened out to a spread of 257 bps, from prior levels around 157 bps. On a dollar-price basis, those bonds fell about 2½ points to under the 95 level.

Bud's 6.45% notes due 2037 were quoted as having widened a little to a spread of 238 bps.

Those movements - on relatively small actual trading levels mostly involving small odd-lots - followed the news that Anheuser-Busch had agreed to a sweetened offer from Belgium's InBev SA of $52 billion or $70 per share, up from the original $46 billion, or $65 per share offering, which had been rejected by Anheuser as inadequate.

The Anheuser-Busch CDS tightened about 40 bps, a source said.

He noted the agreement didn't have much impact on the market as it was considered old news.

"That deal was in the works for a while now, so no one was really surprised," he said. "I think the only surprising thing was how fast it happened."

Waste Management bonds lower

Waste Management Inc.'s bonds widened sharply on the news that the company has made a $6.19 billion offer to buy Republic Services Group, which could torpedo the latter company's own pending $6 billion-plus effort to buy Allied Waste Inc.

The 7.75% notes due 2032 widened out to about 300 bps over, out some 20 bps on the session.

Trading was seen as fairly active, with one transaction of over $5 million.

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