Amgen, Bank of America, American Express unit price; low new issue premiums cause secondary woes

By Andrea Heisinger and Paul Deckelman

Omaha, May 20 - New issues kept coming Tuesday with Amgen Inc., Bank of America Corp., American Express and Toyota Motor Credit Corp. pricing deals.

The pace could not keep up with Monday's session, when 12 issuers priced about $11 billion in new issues.

The month of May has already had more than $115 billion in new issues, sources said, breaking a monthly record.

Tuesday's issue from Bank of America contributed $2.7 billion to the month's total, with one market source saying it was a record amount for a retail preferred issue.

The 8.2% non-cumulative perpetual preferred stock priced at par of $25. The 108 million shares are non-callable until 2013, and on dividend payment dates thereafter.

The size of the issue was increased from $300 million, or 121 million shares.

Price talk of the 8.25% area was a bit wider than where the issue priced.

Banc of America Securities LLC was bookrunner.

In the investment-grade secondary market Tuesday, advancing issues led decliners by a margin of almost eight-to-five, while overall market activity, reflected in dollar volumes, jumped by about 51% from Monday's pace.

Spreads in general widened slightly as Treasury yields declined, with the yield on the benchmark 10-year issue, for instance, decreasing by 2 basis points to 3.81%.

Traders continued to see relatively small movements in the spreads of newly priced bonds versus the levels at which they priced, although the new Kraft Foods Inc. and PepsiCo Inc. bonds were seen having widened out from their pricing levels. Harley-Davidson Funding Corp.'s recently priced bonds continue to hog the spotlight, still trading at strongly tighter levels versus issue.

Amgen matches talk

Back in primary action, biotechnology company Amgen priced $1 billion of senior notes in two tranches.

The $500 million of 6.15% 10-year notes priced at 99.828 with a spread of Treasuries plus 240 basis points.

The $500 million of 6.9% 30-year notes priced at 99.819 with a spread of Treasuries plus 240 bps.

Both tranches had price talk of 240 bps area.

Goldman Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Inc. and Barclays Capital Inc. ran the books.

AmEx upsizes

A unit of American Express priced an upsized $900 million two-year floating-rate notes at par to yield one-month Libor plus 140 bps.

The amount was increased from $500 million, a source close to the deal said.

Barclays, BNP Paribas Securities and Deutsche Bank Securities Inc. were bookrunners.

Toyota sells two

Toyota Motor Credit priced two issues Tuesday.

They did $500 million of one-year floating-rate medium-term notes at par to yield Federal Funds rate plus 44 bps.

Citigroup Global Markets Inc. was agent.

The second issue was $400 million of one-year medium-term floaters at par to yield one-month Libor plus 1 bp.

J.P. Morgan Securities Inc. was agent.

Details on an issue from Deutsche Bank AG, London branch were given Tuesday.

The company reopened its 4.875% five-year senior unsecured notes to add $500 million.

The reopened notes are priced at 100.61.

Total issuance is now $3 billion including $2.5 billion priced May 15.

Deutsche Bank was bookrunner.

PartnerRe, Liberty Mutual to price

More information on some upcoming issues was also announced Tuesday.

Marketing of an issue of 10-year senior notes from PartnerRe Finance A LLC has finished, with the notes expected to price later this week, a source close to the deal said.

It is being talked at $250 million with no price talk given yet, he said.

Credit Suisse Securities and Wachovia Capital Markets are bookrunners.

Liberty Mutual Group Inc. has finished its roadshow for an issue of 80-year hybrid junior subordinated notes.

The split-rated issue is expected to price this week via Rule 144A/Regulation S.

Banc of America, Citigroup and J.P. Morgan are running the books.

OJSC Russian Agricultural Bank has finished its roadshow for a two-tranche dollar-denominated issue.

Pricing is expected Wednesday via Rule 144A, a source close to the issue said.

Price talk for the long five-year tranche is 7.125% to 7.25%, and 7.75% to 8% for the 10-year tranche.

Brazilian development bank Bndes is planning a benchmark-sized issue of 10-year senior unsecured bonds.

Morgan Stanley & Co., Inc. and Citigroup are running the books.

Low rates draw borrowers

The record-setting issuance for the month highlights that issuers are taking advantage of lower costs to get a deal in the market.

But the lower new issue premiums have meant that issues are now widening in the secondary rather than tightening after pricing as they had been doing in the past few weeks, a source said.

Recent examples were Monday's issues from Kraft Foods Inc. and PepsiCo Inc., both seen widening in trading Tuesday.

"The new issue premium has shrunk so much that they're having to widen out in the secondary," a source said. "There are a million bonds in the market, and when you have so many bonds that's what happens. The only people who are happy about it are the issuers."

The week should continue its slowdown leading up to Friday's early market close and a long holiday weekend, sources said.

Three bankers each said they had one issue that could price Wednesday, and that it will be slower than Tuesday.

The number of financial names pricing issues should wane, a source said.

"They've been taking so much out of the market that there's really no one left to issue right now," he said.

Kraft, PepsiCo widen out

A market source said that he had heard that the new Kraft and PepsiCo issues had both widened out "considerably" from the levels at which those bonds had priced on Monday, blaming the price deterioration on the lower new issue premiums.

A trader at another desk said the Kraft 6.125% notes due 2018 "did widen out at least 5 bps from where they came, if not more."

The Northfield, Ill.-based food processing and marketing giant priced $1.25 billion of the bonds on Monday at 240 bps over Treasuries, the same level at which it also priced $750 million of 6.875% bonds due 2038. The trader did not see any levels on the latter issue.

Meanwhile, he saw PepsiCo's 5% notes due 2018 at 133 bps bid, versus the 125 bps level at which the Purchase, N.Y.-based soft-drink and snack-food powerhouse had priced $1.75 billion of the bonds on Monday.

Arcelor-Mittal 'battles back'

He also saw the new Arcelor-Mittal 5 3/8% notes due 2013 trading at 233 bps bid, 227 bps offered, which he called 3 bps to 5 bps tighter from the level at which they priced on Monday.

The Luxembourg-based steelmaker's $1.5 billion of five-year bonds had priced at a spread versus comparable Treasuries of 235 bps. He estimated the same trading level for the company's $1.5 billion of new 6.125% notes due 2018, which also priced at 235 bps over.

'Some sloppiness'

Another trader said that there was "some sloppiness" in the new high-grade issues. "We've seen some of the reluctance of some of the short-term investors to just get in and out as quickly as they can, so you're not going to see that kind of big pop" in some of the names.

For instance, he saw the both of the new Arcelor-Mittal tranches "open up really sloppy this morning," estimating that the five-years had widened out about 5 bps on the break to 240 bps bid.

However, he added that "they've battled all the way back - they cleaned up some of the weaker hands and have now traded through issue." By the later afternoon, he said, the bonds had bounced to a 232 bps bid on the five-years and 233 bps on the 10-years, "so they've actually battled back to the plus side. Things opened up really sloppy in the morning, and stocks [which were lower on inflation and oil-price worries] didn't really help things for most of the day, but some of these new issues cleaned up a little bit as the day wore on."

Lexmark 10-years outpace fives

The first trader saw Lexmark International Inc.'s new 5.90% notes due 2013 trading at a relatively wide 287 bps bid, 279 bps offered, while its 6.65% notes due 2018 were at a narrower 283 bps bid, 278 bps offered, "so it looks like the '18s tightened in a little bit more than the five-years did."

The Lexington, Ky.-based maker of computer printing equipment priced $350 million of the five-years and $300 million of the 10-years on Monday, both at 285 bps over Treasuries.

Harleys born to be wild

While most of the new issues seemed to be trading within about 5 bps to 8 bps of the levels at which they had priced, the notable exception to the rule was Harley-Davidson, whose 6.80% notes due 2018 continued to trade at the sharply higher levels to which the bonds had moved since they priced last week.

The trader saw the new "Hogs" at 275 bps bid, 270 bps offered - well in from the 300 bps over level at which the iconic Milwaukee-based motorcycle manufacturer had priced its $1 billion of new bonds last Thursday. "It sure looks like" everyone likes that new deal, he said.

Another trader also saw the Harley-Davidson bonds seeming to defy gravity and "keep chugging along,' quoting them at 280 bps bid, 270 bps offered, "so they're still doing pretty well."

ProLogis backs up

Another issue he has been watching is ProLogis; the Denver-based owner and developer of worldwide distribution facilities priced an upsized $600 million offering of 6.625% senior notes due 2018 on May 1, at a spread versus Treasuries of 290 bps.

When the bonds broke into secondary, they firmed smartly, the spread tightening to as low as 1254 bps. But since then, he said, "it's kind of backed up," with the bonds currently trading around the 280 bps level.

"It wasn't a one-day move," he said, "it's kind of been drifting up, and they've been 280/270, 280/275, but with the sloppiness in the equities, we've seen some trading right around the 280 bps level." The bonds are still trading 10 bps tighter than issue, "but its 20 [bps] off its tights."

Philip Morris five-years still smokin'

Among other recently priced issues, Philip Morris International Inc.'s 4.875% notes due 2013 continued to trade at sharply higher levels than where it priced. The bonds were quoted Tuesday at 141 bps over Treasuries - well in from the 177 bps level at which the Switzerland-based international tobacco giant priced the $2 billion of bonds on May 13.

Two other tranches of bonds which also priced that session at that same 177 bps level - the $2.5 billion of 5.65% notes due 2018 and $1.5 billion of 6.375% bonds due 2038 - meantime were seen wider than their issue price on Tuesday, the 10-years at 184 bps over and the 30-years at 191 bps.

CDS costs widen out

In the credit-default swaps market, a trader saw debt-protection costs for major brokerage bonds 2 bps to 4 bps wider, and saw CDS costs for big-bank paper 4 bps to 6 bps wider pretty much across the board.

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