Euro zone worries could empty primary market for week; Penske tightens; Motorola, Diageo widen

By Andrea Heisinger and Cristal Cody

New York, May 9 - The new deal pipeline shut down on Wednesday as equities opened down and fears about Greece, Spain and other euro zone countries crept back into the market.

The day's drought was a shock to the system after Tuesday, which saw nearly $9 billion of new deals price.

Annaly Capital Management Inc. sold $275 million of cumulative preferred stock on Wednesday.

While there were high hopes for another blockbuster day to help nudge the week's issuance total closer to the $15 billion to $20 billion expected, they were dashed as the equity market plummeted, following in the footsteps of European markets overnight.

"Blame it on Greece," a syndicate source said after affirming there were no corporate deals in the market.

"Everyone's waiting to see what Monday looks like."

While Thursday could still be a viable day for bonds to price, sources said they doubted many issuers would chance it.

"I don't know if the tone will improve that much by then," a source said. "We might need a weekend to freshen up."

Corporate bonds continued to stay weaker a third day. The Markit CDX Series 18 North American Investment Grade index eased 2 basis points to a spread of 103 bps.

High-grade bonds overall traded "10 basis points weaker starting off the day, and now we're back to unchanged to some stuff slightly better on the day," a trader said. "Flows are relatively light."

Some of the new issues priced on Tuesday widened in secondary trading on Wednesday.

Motorola Solutions, Inc.'s bonds were "pretty weak" in trading on Wednesday and widened nearly 15 bps, a trader said.

Diageo Investment Corp.'s 10- and 30-year bonds traded from 1 bp wider to 2 bps better.

International Business Machines Corp.'s new notes widened 4 bps.

Others tightened. The $1.75 billion offering of two tranches bonds that Penske Truck Leasing Co., LP and PTL Finance Corp. sold on Tuesday traded about 20 bps to 25 bps better on Wednesday.

Bank and financial paper traded mostly unchanged, though Bank of America Corp.'s notes were outperforming, a trader said.

Investment-grade bank and brokerage credit default swaps costs rose, a source said.

Bank of America's CDS costs eased 1 bp to 271 bps bid, 276 bps offered. Citi's CDS costs rose 2 bps to 231 bps bid, 236 bps offered. J.P. Morgan's CDS costs traded 1 bp wider at 107 bps bid, 111 bps offered. Wells Fargo's CDS costs eased 1 bp to 95 bps bid, 100 bps offered.

In brokers, Merrill Lynch's CDS costs traded 3 bps higher at 279 bps bid, 289 bps offered. Morgan Stanley's CDS costs were 2 bps weaker at 385 bps bid, 390 bps offered. Goldman Sachs' CDS costs traded 5 bps higher to 281 bps bid, 286 bps offered.

Treasuries made slight gains with the 10-year note yield down 2 bps to 1.82%. The 30-year bond yield fell 1 bp to 3.02%.

Annaly sells preferreds

Annaly Capital Management priced a $275 million offering of 7.625% series C cumulative redeemable preferred stock, according to a press release.

There is a $41.25 million over-allotment option.

The liquidation preference is $25 per preferred.

Around midday and ahead of pricing, a trader placed the issue at $24.70 in the gray market. Another market source quoted the issue at $24.60 bid, $24.67 offered after the bell but before the deal actually priced.

Also ahead of pricing, Seeking Alpha put out a report that deemed the new series of preferreds as attractive.

"The series C is very attractive relative to the [7.875% series A cumulative redeemable preferreds] as it extends call protection and brings cost to par (for a positive yield-to-call)," contributor Michael Terry wrote. "The swap from NLY-A to NLY-C (assumed ticker) makes absolute sense.

"This new Annaly series C preferred stock should be considered by income investors as a complement to an existing portfolio - either as a new addition or on swap from the existing Annaly preferred stock."

Bank of America Merrill Lynch, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and UBS Securities LLC were the joint bookrunning managers.

Proceeds will be used to purchase mortgage-backed securities for the company's investment portfolio and for general corporate purposes, which may include the retirement of its long-term debt, additional investments and repayment of short-term debt.

Annaly is a New York-based real estate investment trust and asset manager.

Penske comes in

The two tranches of senior notes (Baa3/BBB-/) that Penske Truck Leasing and PTL Finance jointly offered on Tuesday traded stronger on Wednesday, a source said.

The 3.125% notes due 2015 firmed to 255 bps bid, 250 bps offered. Penske sold $875 million of the notes at a spread of Treasuries plus 280 bps.

The 3.75% notes due 2017 tightened to 281 bps bid, 276 bps offered. The $875 million tranche priced to yield Treasuries plus 300 bps.

The transportation services provider is based in Reading, Pa.

Motorola widens

Motorola Solutions' 3.75% senior notes due 2022 widened to 209 bps bid, 206 bps offered going out the door.

The company sold $750 million of the notes (Baa2/BBB/BBB) to yield Treasuries plus 195 bps on Tuesday.

Motorola provides communications and is based in Schaumburg, Ill.

Diageo mixed

Diageo Investment's notes (A3/A-/A-) sold in two tranches on Tuesday were mixed in trading, a source said on Wednesday.

The 2.875% notes due 2022 edged 1 bp wider to 108 bps bid, 105 bps offered. Diageo sold $1 billion of the notes at a spread of 107 bps over Treasuries.

The tranche of 4.25% 30-year bonds firmed 2 bps to 123 bps bid, 120 bps offered. The $500 million tranche of bonds priced at a spread of 125 bps over Treasuries.

The premium drink company is based in London.

IBM cheaper

IBM's 1.875% notes due 2019 widened to 69 bps bid, 66 bps offered on Wednesday, a trader said. The issue (Aa3/A+/A+) priced in a $600 million offering at Treasuries plus 65 bps on Tuesday.

The information technology and computer company is based in Armonk, N.Y.

Bank of America tightens

Bank of America's 5.7% notes due 2022 traded 5 bps better on the day, going out at 303 bps bid, 298 bps offered, a trader said on Wednesday.

Bank of America sold $750 million of the notes on Jan. 24 at a spread of 325 bps plus Treasuries.

The financial services company is based in Charlotte, N.C.

Stephanie N. Rotondo contributed to this review

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