AIG, Principal Life, Diageo issue at end of week with more than $30 billion pricing

By Andrea Heisinger and Paul Deckelman

Omaha, Dec. 7 - American International Group Inc., Principal Life Income Fundings Trust 34 and Diageo Capital plc priced offerings on a Friday with more new issues than usual.

This capped a week with more than $30.3 billion in new issues. Most were a continuation of the resolution of the backlog from more volatile market conditions.

The main focus in the secondary market Friday was once again trading in the new paper which priced during the session, such as American International Group, or over the previous several sessions, like Vulcan Materials Co., Archer Daniels Midland and Kraft Foods Inc. Most of the new paper was seen at least holding its own and not widening from issue, or even tightening markedly in some cases.

AIG priced $2.5 billion in 5.85% 10-year notes at 99.449 or a spread of Treasuries plus 180 basis points.

This was in line with price talk that was 180 bps area.

"The interesting part about this issue is it coming at 180 [bps]," a market source said. "That's only about a 10 bps new issue premium. It's probably because it's better quality paper because that's the smallest [premium] we've seen in a while."

Bookrunners were Banc of America Securities LLC, Credit Suisse Securities LLC and Lehman Brothers Inc.

Principal Life priced $500 million in 5.3% five-year notes at 99.922 to yield 5.318% at a spread of Treasuries plus 180 bps.

Deutsche Bank Securities Inc. and Lehman Brothers ran the books.

Diageo reopens

The third issue of the day was a reopening of notes from Diageo in a Rule 144A deal.

The alcoholic beverage company reopened a $1.5 billion, two-tranche issue of notes from Oct. 23 to add $500 million.

The $250 million add-on to the tranche of 5.2% five-year notes priced at 100.142 to yield 5.161% at a spread of Treasuries plus 165 bps. This brings the total issue for this tranche to $750 million.

The $250 million add-on to the tranche of 5.75% 10-year notes priced at 99.074 to yield 5.874% at a spread of Treasuries plus 175 bps. This brings the total issue to $1.25 billion.

Goldman Sachs & Co. and Morgan Stanley & Co. Inc. were bookrunners.

Steady conditions

The market remained stable, perhaps lending to the unusual amount of issues for a Friday, a source said.

The rest of the week saw issues from a variety of companies, maturities and sizes.

AT&T Inc., Wells Fargo & Co., Transocean Inc., United Technologies Corp., Kraft Foods Inc., British Telecommunications Public Limited Co., Vulcan Materials Co. and Fannie Mae all priced issues of $1 billion or more.

Other issuers under that amount were Caterpillar Financial Services Corp., Baxter International Inc., Cintas Corp., McCormick & Co. Inc., Harley-Davidson Funding Corp., Danaher Corp., Archer-Daniels-Midland Co., Protective Life Corp., Alabama Power Co., Bank of New York Mellon Corp., Regions Financial Corp., West Penn Power and Zions Bancorporation.

Two split-rated issues came from United States Steel Corp. and Susquehana Capital I.

Waiting on the Fed

Next week should have a slow start ahead of Tuesday's Fed meeting, sources said.

"I think we'll have a quiet Monday, but maybe we'll be surprised," a source said. "We didn't think there would be this much on a Friday."

Others were more doubtful, with past Fed meetings seeing issuers waiting until after an announcement of an interest rate cut.

"We probably won't see anything until Tuesday after the Fed meeting," a market source said. "We'll see what happens Tuesday afternoon."

AIG tighter in trading

A trader saw the new AIG 5.85% notes due 2018, which priced at 180 bps over, tightened a little to 178 bps bid, 173 bps offered when it hit the aftermarket.

Among the deals which priced on Thursday, he saw Vulcan's five-year notes narrow to 212 basis points over Treasures from their issue spread at 225 bps over, its 10-year notes at 230 bps, versus a 240 bps over issue spread, and its 30-year notes at 262 bps over, in from 270 bps. All three issues were seen bid without on Friday.

Archer Daniels' new 6.45% notes due 2038, which had priced Thursday at 200 bps over, were seen having tightened to 188 bps bid, 185 bps offered, while Danaher Corp.'s 5 5/8% notes due 2018, which priced Thursday at 170 bps over, had come in to 167 bps bid, 163 bps offered on Friday. The trader noted that relatively speaking, Danaher has "very little outstanding debt" on its balance sheet, its paper consisting of one convertible issue, a euro-denominated bond and some short paper coming due next year - a capital structure profile which would make it attractive to investors.

New deals seen cheap

Also helping most of the new deals, the trader said, was that the issuers and their underwriters "priced them so cheap to the market," to get the deals done, "and then what happens is that all of the buyers who didn't get filled on their full allocation come rolling back in, trying to buy the stuff in secondary, and it tightens things a little more."

Among other new bonds, CVS/Caremark's new pass-through issue tightened to "inside 300 bps," the trader said, from its issue spread of 312 bps.

He saw the Kraft 10-year bonds, which had priced on Wednesday at 225 bps over, trading at 213 bps bid, 206 bps offered, while its new 30-year bonds were at 233 bps bid, 230 bps offered, well in from their issue spread at 250 bps.

Market players did not initially go hog-wild for Harley Davidson Funding Corp.'s new 5¼% notes due 2012, which had priced Wednesday at 200 bps over - well up from the 160 bps level at which the motorcycle maker's bonds had initially been talked around - and which were initially not seen trading around in the secondary, but by Friday some buyers had hopped aboard, and the bonds had firmed a little to 195 bps bid, 190 bps offered.

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