Carolina Power, Consumers Energy, U.S. Bank price; tone still weak, supply healthy; Bear hit by rumors

By Andrea Heisinger and Paul Deckelman

Omaha, March 10 - A week tone kept many corporate issuers out of the investment-grade market Monday, but issues from Carolina Power & Light Co. d/b/a Progress Energy Carolinas, Inc., Consumers Energy Co., U.S. Bancorp and HSBC Finance Corp. managed to get done.

Those that did price got in early, a market source said.

In the investment-grade secondary market Monday, advancing issues and decliners were about even, while overall market activity, reflected in dollar volumes, fell about 7% from Thursday's levels.

Market rumors that Bear Stearns & Co. was facing solvency problems caused the brokerage's bonds to fall sharply and the credit-default swap spreads on its debt-protection contracts to balloon out, even though the company denied that anything was wrong.

That also took other financials lower and caused their CDS spreads to likewise widen out.

The carnage in the financials overshadowed anything going on in the non-financials market, including the new deals from Consumers Energy and Carolina Power & Light, which were not seen in the aftermarket.

Two utilities price

Carolina Power & Light priced $325 million 6.3% 30-year first mortgage bonds at 99.821 to yield 6.313% with a spread of Treasuries plus 185 basis points.

Bookrunners were J.P. Morgan Securities Inc. and Wachovia Capital Markets LLC.

The company plans to use the proceeds from the issue to retire the outstanding balance of $300 million in medium-term notes due April 1.

Consumers Energy priced $250 million in 5.65% first mortgage bonds due 2018 at 99.617 to yield 5.699% with a spread of Treasuries plus 225 bps.

Barclays Capital Inc., BNP Paribas Securities Corp. and Scotia Capital were bookrunners.

HSBC Finance priced $92.926 million of 5% four-year senior unsecured notes.

Banc of America Securities LLC, HSBC Securities Inc. and INCAPITAL LLC ran the books.

U.S. Bancorp priced its issue of non-cumulative perpetual preferred stock.

Terms were not available at press time.

Proceeds from the preferreds, which is non-callable for five years, will be used for general corporate purposes.

Bookrunners were Merrill Lynch, Pierce, Fenner & Smith Inc. and Lehman Brothers Inc.

Tone still shaky

The market tone remained weak from Friday, with indexes way wider, one source said.

"People are definitely nervous about the world," he said. "That's why you didn't see any corporates out there today."

The level of new issues for the rest of the week remains uncertain.

Some firms claim to have a healthy forward calendar, but one source said he was doubtful about how much would come to the market.

"I'm not sure about that," he said. "I don't think there will be a whole lot for the foreseeable future."

Another source said there is supply, but it's going to take at least one day of stability to get any deals done.

"It's pretty rough out there right now," a source said. "I don't think anyone's really going to have much to do this week."

Market bearish on Bear Stearns

In the secondary, a trader cited the rumors that Bear Stearns was having financial problems as a key catalyst for the financial sector "getting sloppy," even though the company hotly denied that it was in any kind of a liquidity pinch.

Bear Stearns' 7¼% notes due 2018 were among the most actively traded issues of the day. Those bonds widened out massively to 660 bps over Treasuries, versus Friday's spread at 530 bps over. In dollar-price terms, the bonds swooned more than 7 points on the day to end below 83, and were down around 12 points from their peak intraday levels.

A trader saw Bear's CDS contracts zoom out as far as 625 bps bid at one point before "bouncing back a little" to finish about 600 bps; still, both levels, he said, were around 100 to 150 bps over where they had traded in Friday.

Another trader saw the cost of protecting that debt at 600 bps bid, 630 bps offered, versus levels in the mid-460s on Friday.

Other financials bitten by the Bear

He said that "all of the others" among the financials were out anywhere from 35 bps and upward on the CDS contracts, glimpsing Lehman Brothers at 400 bps bid, 420 bps offered, out around 75 bps from Friday's levels; Merrill Lynch's debt-protection costs out 50 bps from Friday's levels to 320 bps bid, 350 bps offered, and Morgan Stanley's out 35 bps to 300 bps bid, 320 bps offered.

In cash-bond trading among the financials, Morgan Stanley's 5 3/8% notes due 2015 were seen having widened out by some 25 bps to the 285 bps area, while the company's 3 7/8% notes due 2009 were out to about the 210 bps level. Its 5.95% notes due 2017 were trading 100 bps behind at 309 bps.

Goldman Sachs' 5.25% notes due 2013 were also out around 25 bps on the day to the 260 bps level.

Countrywide off on Fed probe

Also among the financial names, Countrywide Financial Corp.'s nominally investment-grade rated bonds were seen down several points on weekend news reports that the Calabasas, Calif.-based mortgage originator is being investigated by the FBI on suspicion of securities fraud, part of the feds' wider investigation into improper practices in the subprime mortgage industry.

"The bonds were all down across the board," a trader said, pegging its 3¼% notes slated to come due this May at 94.5 bid, 96 offered, down 1½ points on the day, and its 6¼% notes due 2016 off 3 points at 65 bid, 67 offered, hurt by weekend news reports that the lender was the subject of an investigation by the FBI.

Another trader saw the 31/4s at 95.5 bid, 97 offered, which he said was off only a little from previous levels around 96. But he said the company's 6¼% notes due 2009 were down 3 points at 84 bid, 86.5 offered.

Weekend news reports in The New York Times and The Wall Street Journal, citing unidentified sources said to have knowledge of the case, indicated that Countrywide is being investigated over whether it misrepresented its financial condition and the quality of its loans in securities filings. Countrywide said Monday that it was unaware of any such investigation. Bank of America, which is in the process of acquiring the largest independent U.S. mortgage lender, said that its plan to buy Countrywide was still "on track."

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