Primary quiet on economic fears; PepsiCo notes focus of secondary, seen heavily traded, tightening

By Andrea Heisinger

New York, Oct. 22 - The primary market was again at a virtual standstill Wednesday after an optimistic boost from the previous day's large issues from PepsiCo Inc. and its related Bottling Group LLC.

More economic news as well as the anticipation of more companies reporting financial losses likely discouraged potential bond issuers Wednesday, a source said.

In the secondary market, the focus was not on earnings but on the previous day's new issues from PepsiCo and its bottling division, which were seen tightening and trading heavily.

Primary window closes

The window of issuance closed Wednesday, sources said, despite successful issues the day before.

Those issuers paid a stiff price to come into the market, with some estimates at around 150 basis points, which may have scared some issuers away.

"That was what everyone was wondering [Tuesday] - whether those issues would do anything," a source said.

The inflated pricing for new issues long ago surpassed record levels. The $3.3 billion in two deals from PepsiCo played havoc on the secondary market the day it priced because it tightened nearly 50 bps only an hour after pricing.

The price discovery that went along with these issues and the one from CSX Transportation Inc. may have been bad news for any companies thinking of issuing.

"People are making those calls in the morning, and some of them wait until the afternoon," a source said. "No one knows what the market will do."

Wednesday was no exception. The day started with an announcement of a $23.9 billion loss from Wachovia Corp., which was a record write-down for a quarter.

This, along with renewed fear of recession, hit the stock market, which closed much weaker.

"Right now it's definitely day to day," a source said when asked about the chances of issuance Thursday. "No one even wants to guess because you can't."

PepsiCo tightens 100 bps

The new issue of 7.9% 10-year notes from PepsiCo was seen nearly 100 bps tighter Wednesday afternoon from pricing at 420 bps.

They were seen at 325 bps bid, 323 bps offered, a trader said.

Pepsi's Bottling Group 6.95% note issue due 2014 was also seen tighter, at 402 bps bid, 400 bps offered from pricing at 435 bps.

CSX slightly tighter

CSX Transportation's issue of 8.375% notes due 2014 tightened between 5 bps and 15 bps Wednesday to 570 bps bid, 560 bps offered, a trader said.

The notes priced at 575 bps.

Wells Fargo weaker

Wells Fargo bonds were seen "a little weaker from yesterday," a trader said, on the announcement of a record loss from Wachovia Corp.

The $23.9 billion write-down for the financial firm, which is being acquired by Wells Fargo, sent Wells Fargo bonds 5 bps to 10 bps wider.

"It's not very monumental," the trader said, adding that the focus was on other things trading in the secondary.

Banks wider, brokers mixed

Bank credit-default swaps were seen 2 bps to 12 bps wider late Wednesday afternoon, with broker names finishing mixed.

The latter spanned a range of 45 bps tighter to 5 bps wider, with a trader saying Morgan Stanley & Co. Inc. was "tightening up a little bit."

Focus on PepsiCo

The secondary market was mostly focused on Tuesday's large issues from PepsiCo and its Bottling Group unit. The notes were trading heavily, a trader said.

"It was pretty busy today," he said.

There was not much attention on other financial bonds, even those from names that have suffered large losses in earnings announcements.

"This was kind of what we predicted," he said.

CIT biggest mover

Two units of finance and loan company CIT Group Inc. were seen topping both the tightening and widening lists late Wednesday.

The CIT 7.625% notes due 2012 were seen tightening more than 190 bps, while the CIT Canada 5.6% notes due 2011 were more than 300 bps wider.

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