Pace slows as Goldman, HSBC, Pricoa, Alabama Power, John Deere price in strong market

By Andrea Heisinger and Paul Deckelman

Omaha, Oct. 11 - The pace of new issuance slowed somewhat Thursday with about $5 billion in new issues from Goldman Sachs Group Inc., HSBC Holdings PLC, Pricoa Global Funding, Alabama Power Co. and John Deere Capital Corp.

This compares with the more than $11 billion in issues Wednesday.

Friday should have even less volume, sources said, with only a couple of new issues.

In secondary trading - which saw a generally firmer bias, as advancing issues led decliners by around a seven-to-six ratio - Goldman Sachs' new 5-year notes and the new 5-year bonds that American Express priced on Wednesday were both seen having tightened. So did the new 30-year bonds that HSBC sold as an add-on issue.

Apart from the financial issues, the new Darden Restaurants Inc. bonds priced Wednesday were seen having tightened notably in the aftermarket.

Traders were mixed on the impact which a Moody's Investors Service downgrade to junk had on the bonds of previously investment-grade homebuilders Centex Corp., Lennar Corp. and Pulte Homes Inc.

While one saw the bonds a little bit lower, others indicated that there wasn't much activity going on in that quarter, since the downgrade was not unexpected. A trader said that credit default swaps linked to the companies' paper were either unchanged to actually a little tighter, even following the downgrade news, and saw debt-protection costs for major brokerage bonds continuing to tighten as well.

Goldman, HSBC bring deals

Goldman Sachs issued $2 billion of 5.45% five-year notes priced at 99.867 to yield 5.48%, at a spread of Treasuries plus 110 basis points.

The issue from HSBC was a reopening of $1.75 billion of its 6.5% 30-year global notes. This brings the total issuance to $2.5 billion, adding to $750 million originally issued on Sept. 5.

The notes priced at 99.821 to yield 6.513%, at a spread of Treasuries plus 160 bps.

Pricoa priced $500 million of 5.4% two-year notes at 99.801 and a spread of Treasuries plus 105 bps.

John Deere Capital Corp. sold $600 million of two-year floaters with a coupon of three-month Libor plus 29 bps.

Alabama Power priced $200 million of 6% senior insured monthly notes at a spread of Treasuries plus 108 bps.

New deal premium, spreads contract

New issue premium continued to stay below 10 bps in most cases, a source said.

The HSBC issue had a premium of 7 bps, the source said, which has been about average.

Spreads also continue to tighten.

"Spreads are pretty firm," a source said. "Most of the stuff that came yesterday [Wednesday] is 2 to 3 basis points tighter in most cases."

The market for investment grade issues was "actually really strong" Thursday, a market source said.

"I think things could get pretty quiet tomorrow, and a lot of financials are still in a blackout," the source said.

"Going forward to next week we're going to be fairly active with all of the financials coming in."

Another source agreed there wouldn't be much pricing Friday, and the total issuance for the week would be around $20 billion.

Darden gains in trading

The issue from Darden Restaurants, Inc. Wednesday was faring well in secondary trading a day later.

All three tranches of the $1.15 billion issue were trading considerably tighter, a source said.

The 6.2% 10-year senior notes priced at Treasuries plus 158 bps and were seen at 141 bps bid, 138 bps offered, while the 6.8% 30-year senior notes priced at Treasuries plus 200 bps and were seen at the 179 bps area.

"I'm sure a lot of dealers were calling the company after that," the source said.

New Goldman, HSBC deals tighter

A trader said that the new Goldman Sachs 5.45% senior global notes due 2012 were trading at a spread of 106 basis points over comparable Treasuries, after having priced earlier in the session at 106 bps over.

He also saw HSBC's new add-on 6½% bonds due 2037, which had priced at 160 bps versus Treasuries, as having come in later to levels around 156 bps bid, 153 bps offered.

Also seen improving were the new American Express 5.55% notes due 2012, which had priced late Wednesday at 122 bps over; the trader saw them on Thursday having tightened to 117 bps bid, 115 bps offered.

Trader sees builders' bonds edge lower

A trader saw the bonds of the investment-grade homebuilders cut to junk by Moody's - Centex, Lennar and Pulte - as having eased a little in reaction to that news, even though it had been fairly widely expected that such a downgrade might take place.

He saw Miami-based industry leader Lennar's 5.95% notes due 2013 off a point at 95 bid, 95.5 offered after Moody's cut its ratings to Ba1 from Baa2 previously.

The trader saw Bloomfield Hills, Mich.-based Pulte's 7 5/8% notes due 2017 and 6¼% notes due 2013 each down ½ point, at 90.75 bid, 91.75 offered and 89.75 bid, 90.75 offered, respectively, after the agency lowered its ratings one notch to Ba1 from Baa3.

A market source said that there was not much activity going on in Lennar bonds, or Pulte's, with a bit more in bonds of Dallas-based Centex, whose ratings were lowered to Ba1 from Baa2 previously.

Another source saw the latter's bonds trading in a mixed bag, with some up and some down, either because of the news - or in spite of it. While the company's 7 7/8% notes due 2011, probably its most busily traded issue, were quoted up around ¾ point on the day at 99, its 4 7/8% notes due 2008 dropped back more than 1¼ point to just under 97, although it should be noted that trading in that issue was relatively light. Its 5.45% notes due 2012 gained 1½ points to nearly 91.

Builder CDS spreads tighten

A trader meantime said that Centex and Lennar "didn't really go down" in response to the Moody's news - in fact, he saw the debt-protection costs for their paper essentially unchanged to somewhat tighter. He saw the CDS contract linked to Lennar's bonds at 282/292 bps, versus 285/295 bps on Wednesday, "pretty much where they were, or maybe they tightened [a little.].

He saw Centex's CDS spread coming in to 265/275 bps, from 275/285 bps the day before, while Pulte's debt-protection costs were about the same, at 335/345 bps.

Broker CDS spreads mostly tighter

The trader also said that credit-protection costs for major brokerage names were mostly lower - a sign of continued investor confidence in the sector. CDS spreads having been coming in steadily over the past few weeks, particularly since the unexpectedly large Federal Reserve rate cut, which gave a credit-crunch-wary Wall Street a dramatic shot in the arm.

He saw the cost of a five-year CDS contract to hedge against a possible event of default in Bear Stearns' paper having tightened a bit to 68/73 bps from 70/75 bps on Wednesday, as did those for Merrill Lynch, in 3 bps at 38/43 bps, and Morgan Stanley, seen 1 bp tighter at 37/42 bps. Debt-protection costs for Lehman Brothers' bonds were unchanged at 58/63 bps.

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