Pfizer sells $13.5 billion bond issue; State Street, SoCal Edison price; Pfizer bonds tighten

By Andrea Heisinger

New York, March 17 - All eyes in the high-grade bond market were on the huge $13.5 billion bond sale from Pfizer Inc. that priced Tuesday after going overnight. There were other sales in the market, including those from Southern California Edison Co. and an issue backed by the Federal Deposit Insurance Corp. from State Street Corp.

The focus was the same in the non-financial sector of the secondary, as the new Pfizer bonds made sharp gains and continued to tighten after pricing.

Recent deals from Progress Energy Inc. and Smith International Inc. continued to hold or make gains.

Spreads were generally tighter for the second day in a row, with Treasury yields widening. The 30-year bond, for example, was up 6 bps to yield 3.82%.

Pfizer sells mega deal

Pfizer priced its $13.5 billion bond offering in five tranches Tuesday after it was delayed overnight because of its size and investor interest.

As of about 5:30 p.m. ET Monday there was about $20 billion on the books, but that had grown to about $27 billion by Tuesday morning, a source said, making it two times oversubscribed.

Most of the tranches featured fixed-rate coupons, with a floating-rate tranche added as the deal evolved Monday.

The size of the sale makes it the second-largest corporate sold in the high-grade bond market. It comes in behind a $16 billion sale from rival drug company Roche that sold in six tranches on Feb. 18.

That deal had some similarities to Pfizer's. It was also a two-day sale, had high demand and proceeds were used to fund the takeover of another pharmaceutical company - in that case Genentech Inc.

Pfizer's proceeds are being used for the acquisition of Wyeth, which will make it the world's largest drug company.

The pharmaceutical company has headquarters in New York City.

Pfizer at low end of final guidance

The five tranches of the Pfizer sale were all at the tight end of final price guidance set late Monday, although wider than initial talk.

Full terms were not available at press time.

The $3.5 billion of 4.45% three-year notes priced to yield Treasuries plus 305 bps, which was tighter than talk that was in the 310 bps area. This guidance, and that for all of the tranches, has a margin of plus or minus 5 bps.

The $3 billion of 5.35% six-year notes priced at Treasuries plus 340 bps, at the tight end of the 345 bps area talk. Initial talk was heard at 330 bps, a source said.

The $3.25 billion tranche of 6.2% 10-year notes priced at Treasuries plus 325 bps, with talk in the 330 bps area. Guidance was initially 320 bps, the source said.

A tranche of $2.5 billion in 7.2% 30-year notes priced at Treasuries plus 345 bps, with talk in the 350 bps area. Talk was initially 330 bps, a source said.

The $1.25 billion of two-year floaters priced at par with a coupon of three-month Libor plus 195 bps. This was at the tight end of talk that was in the Libor plus 200 bps area.

Banc of America Securities LLC, Barclays Capital Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. and J.P. Morgan Securities Inc. ran the books.

Logistics lead to two-day sale

The Pfizer sale was initially expected to price Monday after being announced early that morning. As investor interest, and the size of the deal, grew, the sale instead went overnight.

"It came at the same levels as yesterday," a source close to the deal said, adding that the overnight sale didn't adversely affect anything.

Total books were "approaching $30 billion," he said.

"It didn't hurt anything to go overnight," he said. "It was just a logistics thing with five bookrunners and getting all of the orders coordinated."

A money manager from a mutual fund whose portfolio includes stocks and mostly high-yield bonds who played the deal said there were a lot of hedge and high-yield funds that put in for the Pfizer deal.

He also commented that this was the third large pharmaceutical name to come to the high-grade market in a month, including Roche and Eli Lilly & Co.

"Basically every tranche was two times oversubscribed," the source said. "So some people, such as the hedge funds or high-yield funds, got shut out or got crummy allocations. I suppose people wanted to know what those accounts were doing in a AA deal to begin with."

The high-yield interest came from a lack of new issuance on the high-yield side, among the better names, he said.

Pfizer will be the biggest of the three recent pharmaceutical names issuing because they have more financing in connection with the Wyeth acquisition, the source said, the total cost of which is $64 billion whereas the Genentech takeover was $46 billion.

The source noted that Pfizer is looking at a ratings cut.

"So you're buying it with the knowledge that it is going to be downgraded after the acquisition closes," he said.

The Roche 10-year tranche priced at 345 bps over Treasuries and is trading at just under 300 bps now, he said.

"You can't fight success," he said. "Virtually all of the investment-grade calendar that has come since last fall has gone to premium."

SoCal Edison prices

Electric company Southern California Edison priced $750 million of first mortgage bonds in two tranches.

The deal was not overshadowed by the Pfizer sale because they were different types of issues, a source said.

"It wasn't bad," he said of Southern California Edison. "It was a different ballgame with the first mortgage bonds. There wasn't any difficulty getting it executed."

The $250 million of 4.15% bonds due 2014 priced at Treasuries plus 220 bps. This was at the tight end of talk of 220 to 225 bps.

The $500 million of 6.05% 30-year bonds priced at Treasuries plus 235 bps. This was also at the tight end of guidance of 235 to 240 bps.

The subsidiary of Edison International is based in Rosemead, Calif.

State Street sells FDIC deal

State Street priced $2.45 billion of FDIC-backed notes in two tranches Tuesday, although terms were unavailable at press time.

The sale consisted of two-year fixed- and floating-rate notes, a market source said.

Goldman Sachs and Morgan Stanley & Co. Inc. ran the books.

Pfizer sharply tighter

The four fixed-rate tranches of the Pfizer deal were seen nicely tighter in the secondary market soon after selling, a trader said.

The 4.45% notes due 2012 were in 40 bps to 265 bps bid from the 305 bps price. They were later seen by another trader at 245 to 240 bps.

The 5.35% notes due 2015 didn't do quite as well but firmed 25 to 30 bps to 315 bps bid, 310 bps offered from the 340 bps price over Treasuries. They later were seen at 308 bps.

The 6.2% notes due 2019 were at 305 bps bid, 290 bps offered, tighter than the Treasuries plus 325 bps price. The tranche was trading later at 297 bps.

A 7.2% tranche due 2039 also was better at 325 bps bid, 315 bps offered, in from the 345 bps over Treasuries price. The notes were later seen trading at 315 bps.

When asked if this issue was the focus of the secondary Tuesday, a trader said "Oh yeah."

Smith bonds further gains

The two tranches of the Smith International issue priced Monday were seen tighter in trading, a trader said. Both priced at Treasuries plus 680 bps.

The 8.625% notes due 2014 were trading at 665 bps bid, in about 15 bps.

The 9.75% notes due 2019 were at Treasuries plus 655 bps bid, in about 25 bps from the pricing level.

Progress Energy tighter

The Progress Energy sale in two tranches from Monday was seen remaining tighter in the secondary market late Tuesday, with the five-year notes making further gains and the 10-year notes losing ground.

The 6.05% issue due 2014 were at 395 bps bid and were in a few more basis points than where they were Monday. They priced at Treasuries plus 420 bps.

The 7.05% notes due 2019 were not as lucky, trading virtually unchanged from where they priced at Treasuries plus 415 bps. They were at 415 bps bid, 405 bps offered, losing a few basis points from Monday.

Distressed traders eye high-grade names

A trader in distressed junk said Tuesday that they are also dealing in investment-grade names.

"Right now there's as much high grades trading in our market as there is the typical stuff you'd expect," he said. "We traded a bunch of Sallie Mae today. It's very opportunistic."

He continued, talking about the status of General Electric's paper.

"GE had a little bit of a run up," he said, "but there's a real disconnect between the real short stuff , which I would consider still high grade, and all of the subordinated longer paper, which trades at 40 to 50 cents on the dollar."

GE Capital top traded

A bond from General Electric Capital Corp. again took the top spot on the most-traded list Tuesday.

The financial arm of General Electric saw its 5.25% notes due 2012 with the most volume as of early afternoon.

The company also held the top spot Monday and part of the previous week after the company was downgraded by credit ratings agencies, although not as much as feared.

Eli Lilly, Citi bonds big movers

Outstanding bonds from Eli Lilly & Co., Bear Stearns and Citigroup Inc. were seen as some of the day's big movers late Tuesday.

A 3.55% bond due 2012 from Lilly was more than 50 bps tighter than the previous week's level. This comes on the day rival drug company Pfizer sold its mega deal.

Bear Stearns also saw its 6.95% bond due 2012 tighten more than 50 bps over last week.

Citigroup, on the other hand, saw its 6.125% notes due 2036 widen more than 100 bps from the previous week.

Paul Harris contributed to this commentary.

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