Altria sells bonds; companies shy away from issuing; financials bonds overtake oil in trading

By Andrea Heisinger

New York, June 8 - Altria Group, Inc. was the only issuer to touch the investment-grade bond market on Tuesday.

The tobacco company priced $800 million of guaranteed notes due 2015 by early afternoon. They are backed by Philip Morris USA Inc.

Financial holding company Zions Bancorporation announced in mid-afternoon that it is selling shares of perpetual preferred stock at $25 each. The sale had not priced as of press time.

The high-grade market was lacking in new deals for the second day in a row, although with the Altria sale there was more volume than on Monday.

"It's still a little shaky," a source said of the market at the close. "I think a lot of people held back today."

There were more deals expected than the one that priced, but they were held on continued fears about Europe and the impact of the oil spill.

One syndicate source said that he "had guys waiting on the sideline" but that everyone was hesitant to actually price any bonds.

There was "not a lot going on" in the secondary side of the market for the day, a trader said. "It's a sign of increasing volatility and concerns in the market."

The Altria bond was the only new issue to trade, and it ended up widening slightly after pricing. Traders quoted it as 1 to 2 basis points out soon after being sold.

Treasuries struggled for the second day in a row, weakening a few basis points across the board.

A trader said that "volume picked up today" after a light start to the week on Monday with no new issues to trade.

The Markit CDX Series 14 North American Investment Grade index showed spreads mostly unchanged from the day before. It was quoted at 130 bps at Tuesday's market close, which is where it was on Monday.

Altria prices $800 million

Altria Group sold $800 million of 4.125% senior unsecured notes due 2015 (Baa1/BBB/BBB+) early in the afternoon to yield 225 bps over Treasuries, a source close to the sale said.

The bonds were seen moving slightly wider after pricing, a trader said. They were quoted at a bid of 229 bps and an offer of 227 bps. A little later they were quoted by another trader as coming back in a little to a bid of 227 bps and offer of 226 bps.

The bookrunners were Barclays Capital Inc., Credit Suisse Securities and Deutsche Bank Securities.

Proceeds are being added to the company's general fund and used to meet working capital requirements, to refinance debt and for general corporate purposes.

The tobacco products maker is based in Richmond, Va.

There was about $1.25 billion on the books. A source commented that they deal may have widened in trading because it was "not terrifically well-priced."

"Their 10-year outstanding in trading was noticeably wider," a trader said. "It didn't help that they priced a five-and-a-quarter maturity instead of a five year."

The sale comes several days after the company agreed to pay $971 million to the Internal Revenue Service over a dispute about the company's income tax returns.

Issuers hold back

At least a couple of potential new investment-grade issues were given a "no go" call in the morning as market conditions continued to be volatile.

One market source who had a couple of deals planned for Tuesday instead priced nothing for the day.

"We took a look at the market [this morning] and decided to see what it was like tomorrow," the source said.

Something of a backlog has been building since the oil rig explosion in the Gulf of Mexico and negativity from euro zone countries have taken over the headlines.

"It's going to take a little stability to get back on that calendar," a source said.

Zions plans sale

Zions Bancorporation is planning a sale of fixed-rate resettable non-cumulative preferreds priced at $25 each, according to a 424B3 filing with the Securities and Exchange Commission.

A source away from the sale said that the preferreds (/B/BB+) had not priced as of late afternoon.

The bookrunners are Deutsche Bank Securities, J.P. Morgan Securities, Macquarie Capital and Zions Direct Inc.

Proceeds are being used for general corporate purposes and may be invested in interest-bearing investment-grade securities in the short term.

The financial holding company is based in Salt Lake City.

Treasuries struggle

The three-year Treasury note auction took place in the afternoon amid solid demand. A 10-year sale is set for Wednesday and a 30-year bond sale for Thursday. There is about $70 billion in Treasury supply expected.

Treasuries were up a few basis points at the close the previous day as stocks struggled and were about 4 bps wider across the board by the end of Tuesday. The five-year note was at a yield of 1.94%, and the 10-year note was at 3.18%. The 30-year bond was out 3 bps at 4.11%.

"Treasuries were a little bit weaker," a trader who deals with that sector said. He quoted Treasury bonds between 3 and 6 bps wider.

Financials popular again

Bonds from a handful of financial names were among the day's most active, a source said as of early afternoon.

Citigroup Inc. had one of the most active bonds of the day with its 8.5% notes due 2019 that were trading at 296 bps over Treasuries. They had been quoted much tighter at 274 bps the previous day.

Another Citi bond - its 6.125% notes due 2018 - was also among the most active and was on top of the 2019s at 296 bps.

Goldman Sachs Group, Inc. also remained popular with investors the day after it was subpoenaed and turned over millions of pages of documents to the Financial Crisis Inquiry Committee.

The banking giant's 6% bonds due 2020 were trading at 259 bps, while its 5.375% notes due 2020 were at 236 bps. The 5.375s were quoted wider the previous day at 250 bps.

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