Rio Tinto, Rockies Express, Prudential price ahead of Fed; little action expected for rest of week

By Andrea Heisinger and Paul Deckelman

Omaha, June 24 - A handful of issues were squeezed in Tuesday from Prudential Financial, Inc., Rio Tinto Finance (USA) Ltd. and Rockies Express Pipeline LLC prior to the conclusion of a two-day Federal Reserve meeting.

Sources said most issuers were trying to at least announce their issues before Wednesday, even though it's likely the Fed will make no changes to rates.

"No one's really expecting anything to happen," a source said, "but people are just cautious these days."

In the investment-grade secondary market Tuesday, advancing issues led decliners by a relatively narrow margin, while overall market activity, reflected in dollar volumes, rose by 11% from Monday's pace.

Spreads in general were seen widening out, as Treasury yields declined notably; the yield on the benchmark 10-year note, for instance, tightened by 8 basis points to 4.08%

Rio Tinto at wide end

The day's issuance totaled more than $10 billion, most of which came from two companies.

Rio Tinto Finance contributed $5 billion to that total, in three tranches.

It priced $2.5 billion 5.875% five-year notes at 99.625 with a spread of Treasuries plus 240 bps.

The $1.75 billion of 6.5% 10-year notes priced at 99.131 with a spread of Treasuries plus 250 bps.

The company also priced $750 million of 7.125% 20-year notes at 99.319 with a spread of Treasuries plus 252 bps.

All of the tranches priced at the wide end of price talk, a source close to the issue said.

Bookrunners were Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Morgan Stanley & Co., Inc., Credit Suisse Securities Inc. and RBS Greenwich Capital.

Rockies Express brings $1.3 billion

Rockies Express Pipeline priced $1.3 billion senior unsecured notes in three tranches.

The $500 million of 6.25% five-year notes priced at 99.948 to yield 6.261% with a spread of Treasuries plus 270 bps.

This was at the tight end of price talk of 270 to 275 bps.

The $550 million of 6.85% 10-year notes priced at 99.858 to yield 6.869% with a spread of Treasuries plus 275 bps.

The $250 million of 7.5% 30-year notes priced at 99.543 to yield 7.538% with a spread of Treasuries plus 287.5 bps.

Both the 10 and 30-year tranches priced in line with talk of 275 bps area and 287.5 bps area, respectively.

Prudential sells subordinated notes

Prudential Financial priced $800 million of 9% 60-year junior subordinated notes at par of $25.

They are non-callable for five years.

Bookrunners were Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Inc., Morgan Stanley & Co., Inc., UBS Investment Bank, J.P. Morgan Securities Inc. and Wachovia Capital Markets.

KazMunayGas sells $3 billion

Another issue came from Kazakhstan's JSC NC KazMunayGas.

The Kazakhstani energy company priced $3 billion of notes in five and 10-year tranches via Rule 144A.

ABN Amro, Citigroup and Credit Suisse were bookrunners.

Issuance seen falling off

The rest of the week will likely see a downturn in issuance, with nothing expected to price Wednesday.

Futures have the Fed making no change to rates at 90%, with a rate hike at 10%, a source said.

"I think most people will be surprised to see any sort of change," he said.

It's likely a couple of issues could price Thursday, with Friday being a "non-event," a source said.

Those that do price later this week will be smaller amounts, with the larger issues already out of the way ahead of the Fed announcement.

New Rio Tinto bonds hold around issue

A trader said that the new Rio Tinto Finance bonds pretty much traded around the same spread levels versus comparable Treasuries at which they had priced earlier in the session.

He saw the company's 5.875% notes due 2013 trading at 240 bps bid, 238 bps offered, versus the 240 bps level at which the notes had priced.

He likewise saw the new 6.50% notes due 2018, which had priced at 250 bps over, trading at 251 bps bid, 250 bps offered.

And the new 7.125% bonds due 2028, which priced at 252 bps over, traded at a wide 252 bps bid, 242 bps offered.

Other new deals trade around

Among issues which priced on Monday, the trader saw the new Macy's Retail Holdings 7.875% notes due 2015 trading at 410 bps bid, 405 bps offered. The Cincinnati-based department store operator priced $650 million of the bonds at 408 bps.

National Rural Utilities Cooperative Finance Corp.'s $900 million of 5.5% notes due 2013 got as tight at 187 bps bid, 185 bps offered, before coming back out to end at 190 bps bid, 187 bps offered. The Herndon, Va.-based financing arm for the nation's rural electric cooperatives priced the bonds Monday at 190 bps over, at the same time that it priced $400 million of floating-rate notes due 2010.

Baltimore Gas & Electric Co.'s new 6.125% notes due 2013 were trading at 247 bps bid, 243 bps offered, in slightly from the 250 bps spread at which the Baltimore-based utility company's $400 million of new bonds priced on Monday.

And Cameron International Corp.'s 6.375% notes due 2018 traded at 225 bps bid, 217 bps offered. The Houston-based manufacturer of oil, gas and industrial equipment priced $450 million of the bonds at 222 bps over, along with $300 million of 7% bonds due 2038, which priced at 235 bps over. The trader said he had not seen the longer bond circulating around.

All told, he said "there's a lot of people trying to raise cash, with the Fed speaking [Wednesday] and with the quarter-end and the month-end [approaching], we've seen a lot of bid lists, and the spread have been a little bit under pressure today[Tuesday]."

J&J steady at tighter levels

Among some other issues which have priced over the last few weeks, Johnson & Johnson's 5.15% notes due 2018 continue to trade at a bid spread of 93 bps, well in from the 103 bps at which the medical products company priced $900 million of the bonds on June 18.

International Paper Co.'s 7.40% notes due 2014 were quoted at a spread of 387 bps over, well in from the 410 bps spread at which the paper and forest products company priced $1 billion of the bonds as part of a three-part offering on May 28.

However, AT&T Inc.'s 6.4% bonds due 2038 were trading at 198 bps over, several beeps outside the 190 bps at which the telecommunications company priced $1.25 billion of the bonds as part of a three-part deal on May 8.

Financial debt-protection costs widen

A trader saw credit-default swap costs for big-bank paper wider by 2 bps to 6 bps, with troubled thrift Washington Mutual 10 bps wider at 555 bps bid, 525 bps offered. He saw brokerage credit-protection costs likewise unchanged to 5 bps wider.

MBIA Inc.'s debt-protection costs continued to widen out as investor confidence in the nation's largest bond insurer evaporated following its loss of its Aaa status at the hands of Moody's Investors Service. A market source saw the upfront cost of protecting that debt widen out to 42.5% from 39.89% previously, plus 500 bps annually.

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