Procter & Gamble, Deutsche Bank price as stability continues; upcoming issuance unknown

By Andrea Heisinger and Paul Deckelman

Omaha, Feb. 12 - New issues from of Procter & Gamble International Funding SCA and Deutsche Bank Contingent Capital Trust III kept the steady stream of investment-grade bond issues flowing Tuesday.

In the investment-grade secondary market Tuesday, declining issues led advancers by about a seven-to-six ratio, while overall market activity, reflected in dollar volumes, rose about 16% from Monday's levels.

Not too much actual trading was seen going on, with the market trying to assess the possible impact of billionaire investment wizard Warren Buffett's offer to assume hundreds of billions of dollars of municipal bond liabilities from the troubled bond insurer companies. Credit-default swap spreads for MBIA Inc. and Ambac Financial Group Inc. widened out on the Buffett offer reports.

Others in the market remained on the sidelines, with a rumored upcoming big bond sale by Home Depot Inc. chilling activity.

P&G floaters oversubscribed

The financing arm of Procter & Gamble Co. priced $3 billion of floating-rate notes in two tranches.

The $1.5 billion tranche of one-year floating-rate notes priced at par to yield three-month Libor plus 7 basis points. This was at the tight end of price talk, an informed source said, which was Libor plus 7 to 9 bps.

The $1.5 billion tranche of 18-month floaters priced at par to yield three-month Libor plus 22 bps. This was tighter than price talk which was Libor plus 23 bps area, the source said.

Citigroup Global Markets Inc., Goldman Sachs & Co. and Merrill Lynch, Pierce, Fenner & Smith Inc. ran the books.

"It went great," a source close to the issue said. "It was very oversubscribed."

The one-year tranche was about four times oversubscribed, while the 18-month tranche was two to three times, the source said.

The pricing was as good as could be expected, a market source said.

"It's about as tight as we've seen in shorter-dated floaters," he said.

He compared the one-year tranche to a recent one-year issue of floaters from ABN Amro that priced at Libor plus 20 bps.

"I think the better quality commercials are doing better than the financials at this point," the source said.

"They're better quality and there's no sub-prime involved."

Deutsche moves up pricing

Deutsche Bank priced its issue earlier than expected. Sources said Monday that it wouldn't price until Wednesday at the earliest.

The bank priced $1.75 billion, or 70 million, 7.6% perpetual trust preferred securities. They are cumulative and non-cumulative and priced at $25 each.

They are non-callable for 10 years, and on distribution dates after that.

Books were run by Deutsche Bank Securities Inc., Citigroup, Merrill Lynch and Wachovia Capital Securities LLC.

A source commented on Monday's $500 million reopening of 10-year notes from Brazil's Petrobras which was announced and then pulled before pricing.

The issue likely would have priced at Treasuries plus 230 bps, and the issuer balked at paying that, the source said.

"I think they'll come back in at some point, but by then it [pricing] could be closer to 275 [basis points]," he said.

There is nothing on the calendar for the rest of the week, and sources said they didn't know of anything definite on the horizon.

"I think today we had a hangover from yesterday," a source said. "Spreads seem stable and the markets are up. We'll just have to wait and see."

Market awaits rumored Home Depot deal

A trader said that in his view, "spreads in general were a little bit better in the high-quality stuff" - but said that he "didn't see a whole lot of activity today."

People, he said, "are waiting to see what's going to go on."

A key concern, he said, is the big bond offering that Home Depot is planning to bring - a prospective mega-deal that is "looming over the market."

He said that as much as $12 billion of new debt might be involved, with proceeds going to the Atlanta-based home improvement retailer's share repurchase program. People in the market, he said "have talked about this thing since probably November or December, but it still looms over the market. It's going to be big once the thing comes out," although he allowed that there's been nothing definitive on it yet.

Buffett plan hot topic of conversation

He saw trading Tuesday being "pretty much a non-event," as market players tried to gauge the impact of Warren Buffett's offer to assume some $800 billion of municipal debt obligations from the troubled monoline bond insurers such as MBIA, Ambac and FGIC Corp.

He said that the plan itself "is really not great news, because he's just trying to cherry-pick the quality pieces off and leave them the garbage. They'll go under and he'll survive with his Berkshire Hathaway insuring the municipal deals - if it comes to that, although my guess is they will all probably turn him down." News reports Tuesday said that Ambac had already nixed Buffett's deal.

The plan "doesn't make any sense to me," he said. "If they accept this plan, that will put the insurers under, because he's charging them to back paper that doesn't really need to be backed."

Credit-default swaps on MBIA were seen having widened out to an upfront price of 17.5% plus 500 basis points annually, up from 16% upfront plus 500 bps on Monday, before the Buffett plan was made public.

Ambac's debt-protection costs also rose, with the upfront figure widening to 17.5% from 15.5% previously, plus 500 bps in either case.

New Verizon bonds mixed

Apart from the financials, Verizon Communications' recently priced 4.412% notes due 2013 that came at 163 bps over Treasuries, were seen trading as wide as 172 bps bid, 169 bps offered; its 6.472% bonds due 2038, which priced at 195 bps over, had come in a bit to 192 bps bid, 191 bps offered; and the 5.532% notes due 2018 offered at 170 bps, in from their 178 bps spread at issue.

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