PNC Bank prices issue; Fed announcement leaves traders optimistic; Weatherford plans deal

By Andrea Heisinger and Paul Deckelman

Omaha, March 18 - PNC Bank, NA slipped in a new deal Tuesday ahead of the Federal Reserve's announcement of an interest rate cut, a reduction that was widely expected, although the actual size of the move was smaller than many had anticipated.

The Fed cut the federal funds rate by 75 basis points, bringing it down to 2.25%. A majority had been predicting a 100 bps cut on Monday.

"Fifty basis points would be disappointing," a market source said before the cut amount was announced.

"Either 75 or 100 bps would be OK."

After the announcement, things definitely looked better, a source said.

"There was a short, brief sell off in stocks, but things looked just fine in the markets. We would have liked to see a 100 bps cut, but we appreciated the 75 bps. The new injection of liquidity coupled with what happened over the weekend is only a good thing."

In the investment-grade secondary market Tuesday, advancing issues narrowly shaded decliners, while overall market activity, reflected in dollar volumes, jumped about 75% from Monday's levels.

Spreads in general tightened, as Treasury yields jumped markedly higher, the benchmark 10-year issue, for instance, ballooning out by some 15 bps.

The 75 basis point cut in the Federal Reserve's key overnight lending rate, while smaller than many in the market had hoped for, was still seen by participants as an overall positive.

There was also a sign of relief that Bear Stearns had avoided a bankruptcy which could have set off a whole chain reaction of tumbling dominoes across the financial industry, and participants were heartened by better-than-expected quarterly results from Lehman Brothers Holdings Inc. and Goldman Sachs & Co.

PNC comes in ahead of Fed

In primary action Tuesday, PNC priced a $325 million issue of 6.875% 10-year notes at 99.222 to yield 6.984% with a spread of Treasuries plus 360 bps.

The subsidiary of PNC Financial Services Group has an outstanding 10-year trading at Treasuries plus 320 bps, a source said. This means about a 40 bps new issue premium which is about what most financials have been averaging lately.

"It must have been pre-sold, because otherwise no one would be stupid enough to enter the market before the [Fed] announcement."

Weatherford plans deal

An upcoming issue from Weatherford International Ltd. was announced Tuesday.

The oilfield services company plans to issue senior notes, with proceeds going to repay existing short-term debt and for general corporate purposes.

Bookrunners are Goldman Sachs & Co., Deutsche Bank Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc.

Terms from an issue from Hartford Life Global Funding were also given Tuesday via an FWP Securities and Exchange Commission filing.

The company priced $175 million of five-year extendible floating-rate notes. They have a coupon of one-month Libor plus 35 bps, increasing by 2 bps after the first year and then 1 bp each year until maturity.

They are non-callable for four years.

Merrill Lynch ran the deal.

Wednesday seen busy

Wednesday will likely be the busiest day this week for new issues, sources said, due to the Fed meeting and an early bond market close Thursday.

"It was another day of stability today, so I think we'll see three, four or five deals tomorrow," a source said.

Another source agreed and said there are a few issuers lining up.

"Issuers are definitely optimistically looking at tomorrow," he said.

Spreads narrow

A trader said that generally, "spreads were about 5 [basis points] tighter in intensive trading." Whatever disappointment high-grade market participants may have felt over the unexpectedly small size of the Fed rate cut, " they got over it pretty fast."

He also noted that "the same kind of plot line remains - people are still de-levering, still selling into strength, and the new-issue calendar still has a lot to come. There's still a lot of stuff that needs to come."

He noted that the upcoming Weatherford International deal would likely come "50 or 60 [bps] back of the existing paper," with other anticipated new issuance "going to continue to weigh on secondary spreads."

Comcast, McDonald's steady

Among the existing paper, the trader saw Comcast Corp.'s bonds "marginally better," maybe by about 2 bps on the session; at another desk, a market source saw the cable giant's 6.30% notes due 2017 trading at 280 bps over comparable Treasuries.

He saw McDonalds Corp. "leaking out" a little, although the company's 4.30% notes due 2013 "hung in the best" at 160 bps bid, 155 bps offered.

And he noted that McDonald's paper across the curve was tighter than its sector peers like Yum! Brands, whose 10-year bonds were at 285 bps bid, 280 bps offered, while Darden Restaurants' bonds "are trading all the way back of 300 [bps]."

Financial CDS levels tighten

A trader saw the credit-default swaps of various financial companies tighter across the board, helped by the Fed rate cut and the better-than-expected Goldman and Lehman numbers.

Players in this market "were reacting to the brokers getting out of the woods," he said. "They put on a love-fest. People were rushing into credit."

He saw credit-protection costs for major banking names between 40 bps and 80 bps tighter on the session, while major brokerage names came in by anywhere from 100 bps to 150 bps, exhibiting renewed confidence in the sector.

He quoted Lehman Brothers' CDS cost as having tightened to 280 bps bid, 300 bps offered, well in from 425 bps bid, 450 bps offered on Monday. Goldman Sachs was in an estimated 50 bps to 155 bps bid, 165 bps offered.

Back among the cash bonds, Goldman's 6.75% bonds due 2037 were seen having tightened about 30 bps to the 330 bps level. Its 5.625% notes and 6.25% notes both due 2017 firmed to 280 bps over.

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