Canadian Pacific Rail, PNC Financial, BJ Services price; slowdown nowhere in sight

By Andrea Heisinger and Paul Deckelman

Omaha, May 14 - Issues from Canadian Pacific Railway Co., PNC Financial Services Group Inc. and BJ Services Co. priced Wednesday, with similar levels expected in coming days.

Some sources it was somewhat slower than expected, but the amount of issuers and what they priced are likely to be the norm in coming days and weeks.

In the investment-grade secondary market Wednesday, advancing issues trailed decliners by about a seven-to-six ratio, while overall market activity, reflected in dollar volumes, rose by about 43% from Tuesday's sedate pace.

Spreads in general widened, as Treasury yields declined, with the yield on the benchmark 10-year note, for instance, falling by 2 basis points to 3.77%.

Canadian Pacific brings $700 million

Canadian Pacific priced $700 million in two tranches.

The $400 million of 5.75% five-year notes priced at 99.625 to yield 5.838% with a spread of Treasuries plus 260 bps.

The $300 million of 6.5% 10-year notes priced at 99.588 to yield 6.557% with a spread of Treasuries plus 260 bps.

Morgan Stanley & Co. Inc. and RBC Capital Markets Inc. were bookrunners.

BJ Services at tight end

BJ Services priced $250 million 6% 10-year senior notes at 99.543 to yield 6.061% with a spread of Treasuries plus 212.5 bps.

This was at the tight end of price talk of 215 bps area, a source close to the deal said.

Merrill Lynch, Pierce, Fenner & Smith Inc. and Citigroup Global Markets Inc. were bookrunners.

PNC sells hybrids

PNC Financial priced $500 million of perpetual hybrid preferred stock.

The shares have an initial fixed rate of 8.25% until 2013 and then a floating rate of three-month Libor plus 422 bps.

They are priced at par of $1,000 and are non-callable for five years.

J.P. Morgan Securities Inc. and Merrill Lynch ran the books.

Terms of an issue from American International Group, Inc. that priced late Tuesday were also given.

The company priced $4 billion of hybrid junior subordinated debentures.

They have a fixed rate of 8.175% until 2038, and then a floating rate of three-month Libor plus 419.5 bps.

They priced at par to yield 8.175% with a spread of Treasuries plus 354.1 bps.

Active bookrunners were Citigroup and J.P. Morgan.

Freddie, Popular bringing preferreds

Details of upcoming issues were also announced.

Freddie Mac plans to price $2.75 billion of non-convertible preferred securities as part of a plan to raise $5.5 billion in new capital, according to a press release.

The other part of the new funds will come from common stock.

"We are already deploying our available capital to make the most of the excellent opportunities we see in the current market, which will serve our mission at a time when most sources of liquidity for the struggling housing sector have dried up," said Richard F. Syron, chairman and chief executive officer of Freddie Mac, in the press release.

"This additional, fresh capital will enable us to do even more to serve our mission and build long-term, durable shareholder value."

The plan to raise capital comes after the company posted a first quarter net loss of $151 million. This is down sharply from the $2.5 billion loss of the fourth quarter of 2007.

Puerto Rico's Popular, Inc. announced plans for a $350 million, 14 million share, issue of non-cumulative monthly income preferred stock.

The perpetual shares will be priced at par of $25 and are non-callable for five years.

UBS Financial Services Inc. of Puerto Rico and Popular Securities are bookrunners.

Busy sessions expected

The final couple of days this week will likely be about the same as Wednesday, with two or three deals coming to the market, a source said.

"The calendar is looking pretty similar to today," he said. "I don't know of anything huge coming up, but it will stay busy."

Most of the upcoming deals will be in the area of $750 million to $1.5 billion, he said.

A slowdown in issuance doesn't seem to be in sight as long as market conditions hold.

"The trend will be a marginal decrease in issuance," a source said.

"We'll probably be seeing weeks with $30 to $35 billion. We'll be hard-pressed to top last week's more than $40 billion."

"There's such a healthy new issue bid out there that no one's going to turn it down if they need capital."

Another source said the only thing that could lead to a slow down is if issues start to underperform.

"If a few deals start to do badly, that could slow us down," he said.

Thursday should pick up a little in the number of issuers, barring any surprises at the open, a source said.

Phillip Morris five-years gain

A trader said Philip Morris International Inc.'s new five-year bonds firmed smartly during the session, although the company's 10-year and 30 bonds tightened only slightly.

He saw the 4.875% notes due 2013, which had priced late Tuesday at a spread of 177 bps over comparable Treasury issues, as having "tightened quite a bit, at least 10 bps or so." He actually saw those notes going home 12 bps tighter at 165 bps bid, 163 bps offered.

There was not such firm demand for the other two tranches of the deal, with the 5.65% notes due 2018 offered at 176 bps, "so they were maybe 1 to 2 bps tighter" than the issue spread, also 177 bps. He also said that he'd heard a 175 bps bid out on the 6.375% bonds due 2038, which priced at 177 bps over like the other two tranches.

Parker, United Technologies firm

Apart from the Philip Morris bonds, he saw Parker-Hannifin Corp.'s 5.50% notes due 2018, which priced Tuesday at 165 bps over, trading in the early part of the day at 161 bps bid, 156 bps offered, but said that since then, "there's been nothing."

He saw United Technologies Corp.'s 6.125% bonds due 2038 at 151 bps bid, 148 bps offered, also in morning trading, but nothing after that. The bonds priced on Tuesday at 153 bps over.

The trader saw no trace of Tuesday's utility issues, such as Tampa Electric Power Co., whose 6.23% notes due 2018 priced at 225 bps, or Columbus Southern Power Co., whose 6.05% notes due 2018 priced at 220 bps over. The smallish-sized utility deals, he surmised, had been snapped up by investors and then put away, "which is usually the case."

Bank CDS narrower, brokers wider

Elsewhere, in the credit-default swaps market, a trader said that the cost of protecting holders of big-bank paper against an event of default was 1 to 2 bps narrower, while CDS costs for major brokerage paper were 1 to 2 bps wider. Washington Mutual's CDS cost, meantime, tightened by 20 bps to 310 bps bid, 330 bps offered.

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