Lehman Brothers, Principal Life price; GE notes seen trading up; smaller names now able to tap primary

By Andrea Heisinger and Paul Deckelman

Omaha, April 17 - New deal volume stayed much the same Thursday, but issues from Lehman Brothers Holdings Inc. and Principal Life Income Fundings Trust 36 could not match the size of that seen earlier in the week.

Some bookrunners were still mopping up after Wednesday's $8.5 billion issue in three tranches from General Electric Capital Corp.

In the investment-grade secondary market Thursday, advancing issues trailed decliners by around a seven-to-six ratio, while overall market activity, reflected in dollar volumes, fell about 14% from Wednesday's pace.

Spreads in general narrowed as Treasury yields continued to rise, with the yield on the benchmark 10-year issue, for instance, widening out by another 5 basis points to 3.73%.

Lehman Brothers Holdings' big new bond issue was heard to have tightened substantially when it broke into the aftermarket.

GE Capital's new three-part deal, which priced on Wednesday, was also seen to have tightened from the levels at which it priced, narrowing a little further from initial aftermarket dealings Wednesday.

Major bank and brokerage debt-protection costs meantime continued to come in, a sign of continued investor confidence in the sector's resurgence despite reports of large losses and writedown, most recently from Merrill Lynch & Co.

Lehman sells $2.5 billion

Despite Wednesday's huge offering from GE Capital, Thursday did have a large issue from Lehman Brothers with $2.5 billion in 6.875% 10-year senior notes. They priced at 99.669 to yield 6.921% with a spread of Treasuries plus 320 basis points.

Lehman Brothers was bookrunner.

Principal Life priced $600 million in 5.3% five-year secured medium-term notes at 99.818 to yield 5.342% with a spread of Treasuries plus 245 bps.

Banc of America Securities LLC, Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. were agents.

Terms of an issue from JPMorgan Chase & Co. were announced. The issue priced late Wednesday.

The bank priced $6 billion, or 6 million shares, of hybrid non-cumulative perpetual preferred stock.

The shares have a dividend of 7.9% until April 30, 2018, and then a floating-rate of three-month Libor plus 347 bps.

They are priced at $1,000 per share.

J.P. Morgan Securities Inc. was bookrunner.

Mood stable

The tone Thursday was much unchanged from Wednesday, a market source said.

This was despite a sour earnings and write-down announcement from Merrill Lynch.

"The underlying tone for new issuance hasn't changed, anyway," the source said.

Some of the issues that have come this week would not have happened in recent months, another source said.

Examples were small cooperative bank CoBank ACB pricing subordinated bank notes earlier this week, and another small relatively unknown company, Martin Marietta Materials Inc. pricing a small issue Wednesday.

"These deals would have been unfinanceable in the past," the source said. "Spreads are still wider, but the smaller names are able to get things done in the primary market."

Both the spreads and dollar prices on the GE notes from Wednesday were trading up in most cases, a source said.

Spreads were seen 5 to 10 bps tighter.

Issuance is likely done for the week, although there have been large, unexpected issues on recent Fridays from American Express and Citigroup.

"I wouldn't rule anything out," a source said. "Last Friday American Express announced a deal at something like 1 p.m. so you just never know."

New deals do well

When the new Lehman 6.875% notes due 2018 were freed for aftermarket activity, a trader saw the bonds rise handsomely, their spread over comparable Treasury issues narrowing to about 300 bps bid, 290 bps offered from 320 bps over at the pricing.

Also on the recent new-deal front, he said, GE Capital's bonds "in about 10 or 15 basis points" from where they had priced on Wednesday.

The 4.80% notes due 2013, which priced at 205 bps over and then tightened Wednesday afternoon to about 194 bps bid, continued to narrow Thursday to 190 bps over.

He saw the 5.625% notes due 2018 also at 190 bps, in from 200 bps at the pricing and in slightly from 192 bps bid, 189 bps offered in Wednesday's aftermarket.

The 5.875% bonds due 2038, a reopened issue that priced at 199.4 bps over and then came in to about 191 bps bid, 185 bps offered were also "about the same, maybe a little bit tighter."

A market source saw XTO Energy Inc.'s new bonds continuing to improve from the levels at which they had priced Tuesday.

The 5.50% notes due 2018 and the 6.375% bonds due 2038 had each priced at 197 bps over, and had then come in to 194 bps bid, 191 bps offered when they began trading around. On Thursday, the 5.50% paper was seen having improved to 193 bps bid, while the 30-year piece was at 190 bps over.

Market shrugs off Merrill's problems

Merrill Lynch became the latest big financial firm to post huge losses connected to the worldwide credit crunch - it lost $2 billion in the first quarter, after having to write down $6.6 billion of bad investments, the company's third consecutive big quarterly loss.

However, the first trader said, "I didn't see a lot [of movement in the company's bonds] on their numbers." He added that "things pretty much held in across the board."

In the credit-default swaps market, a trader said that the cost of protecting holders of Merrill Lynch's bonds against a default for five years was unchanged despite the bull-sized loss at 185 bps bid, 193 bps offered.

He said big brokerage CDS costs in general were from 1 bp to 5 bps tighter, while big bank CDS costs were 4 bps to 15 bps narrower.

Even the recently beleaguered Washington Mutual was seen 15 bps tighter on the day, its CDS cost at 355 bps bid, 375 bps offered.

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