PNC, Lehman, Toyota Motor Credit, KfW price as Seminole Tribe preps upcoming issue; MBIA up late

By Andrea Heisinger and Paul Deckelman

Omaha, Feb. 6 - New issues continued to trickle into an uneasy investment-grade bond market Wednesday, with PNC Capital Trust E, KfW, Toyota Motor Credit Corp. and Lehman Brothers Holdings Inc. pricing.

In the investment-grade secondary market Wednesday, advancing issues and decliners were about even, while overall market activity, reflected in dollar volumes, jumped some 26% from Tuesday's levels.

While the market was fairly quiet and featureless for much of the day, taking its cue from the back-and-forth movement in equities before they finally ended lower, there was a late-day surge of activity in MBIA Inc.'s 14% surplus notes, which pushed several points higher on news the bond insurer was lining up some new financing. MBIA's debt-protection costs also narrowed, a sign of increased investor confidence in the company.

Elsewhere, recently issued bonds from Wachovia Bank and GE Capital were seen having firmed.

PNC brings trust preferreds

PNC priced $450 million, or 18 million shares, of 7.75% trust preferred securities at par of $25. They mature in 2068 and are non-callable for five years.

Books were run by Morgan Stanley & Co. Inc., Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc.

Lehman Brothers added 9.9 million shares to Tuesday's issue of 7.95% non-cumulative perpetual preferred stock. This brings the total issuance to 75.9 million shares, or $1.8975 billion.

Lehman Brothers Inc. and Citigroup were bookrunners.

Toyota Motor Credit priced $175 million one-year floating-rate notes at par to yield prime rate minus 279 basis points.

Agent was Merrill Lynch.

Another issue came from KfW, which priced $100 million of 2.47% one-year notes at par.

HSBC Securities was bookrunner.

Seminole expected soon

There is an upcoming issue from the Seminole Tribe of Florida expected to price later this week or early next week.

The tribe will enter the market Thursday with its proposed $105 million issue of special obligation bonds due 2020, a source close to the issue said.

Pricing is expected either Friday or at the beginning of next week, a market source said.

Merrill Lynch is bookrunner.

More volatility, more weakness

The story Wednesday was much the same as recent days, with the credit markets weaker and with continued volatility, a source said.

"Everyone gets that the markets are volatile and are just dealing with it," he said. "It's more of the same. Issuers understand it's going to take wider spreads to get it done."

Another source said he was surprised there were not more issuers coming into the market Wednesday

"I thought there would be more stuff today, I really did," he said. "It's probably healthy that there's not more, though. The market could use a breather. I think it would be healthy for it."

Other than the Seminole Tribe issue, nothing solid is on tap to come out yet this week.

One source said he knew of a couple of things waiting to come into the market but was unsure of when they would.

MBIA moves upward

A major feature in Wednesday's market was MBIA, although there wasn't much activity going on until late in the session.

A trader saw a late surge - well after 4 p.m. ET - in MBIA's 14% surplus notes due 2033. That lifted those bonds by about 3 points to the 93 bid, 94 level, from prior levels in the upper 80s.

The bonds had priced at par on Jan. 11, then plunged in subsequent days to levels as low as 70s on the company's troubles, including the threatened loss of its AAA financial strength credit rating, before having more recently come back to trade in a high-80s/low-90s context.

The trader attributed the sharp rise to the news that the New York-based bond-insurance company plans to raise $750 million via an equity sale, thus shoring up its capital balance and protecting its AAA top rating.

Ratings agencies had recently said they might have to lower the ratings of MBIA, Ambac Financial Group and other monoline insurers unless they could beef up their capital balances to prepare for what are expected to be more bond defaults in the wake of the ongoing credit crunch touched off last year by the subprime mortgage meltdown.

While the 14% notes were moving up, another trader saw its credit-protection costs narrowing, a sign of better investor sentiment. He saw the credit-default swaps cost of a contract linked to its AA paper at 13% to 16% upfront plus 500 basis points annually; the upfront cost had recently been as much as 18.5%.

He also saw the CDS quote on its AAA paper at a wide 350 bps bid, 395 bps offered, in from previous levels around 430 bps bid, 450 bps offered.

CDS costs widen generally

The trader also saw CDS costs for major bank paper unchanged to 4 bps wider, on average. Big thrift Washington Mutual's debt-protection costs were 10 bps wider.

Among the big brokerage names, he saw CDS costs unchanged to 9 bps wider. Merrill Lynch was 5 bps wider at 147 bid, 155 bps offered, after Standard & Poor's cautioned that the Big Bull is the brokerage name most at risk of having its ratings cut due to its problems with bond insurers and collateralized debt obligations. S&P analyst Scott Sprinzen said on a conference call that Merrill's current ratings - dependent as they are on the recently troubled bond insurers to hedge risk in its CDOs - have but a "limited tolerance" for more losses.

However, another trader said he really didn't see much impact on Merrill's existing bonds.

Wachovia, GE Capital firmer

The trader said generally things were pretty quiet. He did see some movement in the new Wachovia fixed-to-floating rate preferreds, which priced Tuesday at par; he saw it move up to a 103.5-104 context Wednesday.

The new GE Capital 4.875% 2015 add-on notes, which priced Monday at 100.281, were seen as high as 110 bid Wednesday.

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