Goldman prices FDIC-backed debt, other banks to follow; BNSF, Dominion price; new Goldmans gain in trading

By Andrea Heisinger and Paul Deckelman

New York, Nov. 25 - New deals from Burlington Northern Santa Fe Corp. and Dominion Resources Inc. priced Tuesday, but were largely overshadowed by a $5 billion offering from Goldman Sachs Group, Inc.

The Goldman issue was a guinea pig of sorts, as it was the first debt issue guaranteed under the Federal Deposit Insurance Corp. Temporary Liquidity Guarantee Program.

It's likely there are more of these issues on the horizon from other banks, a source close to the deal said.

In the investment-grade secondary market Tuesday, advancing issues led decliners by a better-than-four-to-three ratio. Overall market activity, reflected in dollar volumes, was down more than 10% from Monday's pace.

Spreads in general were seen wider, in line with sharply lower Treasury yields; for instance, the yield on the benchmark 10-year note fell by 24 basis points to 3.08%.

The new Goldman Sachs three-year bonds, which dominated primaryside proceedings, were also the name to watch in the secondary, with several traders seeing those bonds having tightened when they were freed for aftermarket activity.

Some considerable tightening was also seen in the new Dominion Resources issue.

However, the new Burlington Northern bonds, and Monday's Public Service Electric & Gas Co. deal, were little changed from the spreads at which they had priced.

Goldman prices $5 billion

The bank holding company's issuing entity Goldman Sachs Group priced $5 billion of government-guaranteed senior unsecured debt Tuesday.

The 3.25% notes due 2012 priced at 99.612 to yield 3.367% with a spread of Treasuries plus 200 basis points.

They are guaranteed until the maturity date of June 30, 2012.

Goldman Sachs was the bookrunner.

The deal was announced Monday, and was at first reportedly going to be $2 billion with price talk of 220 bps.

A source close to the deal said of the increased size: "At $5 billion, it was a pretty significant transaction."

He also acknowledged the importance of the deal.

"We wanted it to go extremely well for our sector," the source said, "so it would perform well in the secondary."

The intention was for it to be a "big liquid issuance," he said.

The transaction was also intended to pave the way for other banks to have successful issues, which was another reason extra care went into the pricing.

There were "good global books," on the deal, which was marketed more as an agency issue than a corporate bond, he said.

The deal was priced off the agency desk since it was government-backed.

Although it was mostly agency investors, there were some corporate accounts, the source said.

Morgan Stanley plans FDIC deal

The success of the Goldman deal prompted other names to announce similar issues, including Morgan Stanley.

In a Securities and Exchange Commission filing, the bank holding company gave few details other than Morgan Stanley is the only bookrunner.

The filing also noted that the proceeds will be used for general corporate purposes, but not for prepaying non-FDIC-guaranteed debt. This is a stipulation of the bailout package terms.

Pricing is expected Wednesday.

Banks embrace FDIC backing

Only one bank has officially priced its government-backed debt offering, but others are set to follow, market sources said Tuesday.

In the wake of the successful Goldman Sachs deal, several other names were mentioned as having solid plans or intentions to price in the near future even though they have until June, 2009.

Morgan Stanley has formally announced its offering in an SEC filing, with pricing expected Wednesday.

J.P. Morgan is also reportedly planning a non-dollar-denominated FDIC-backed deal.

A source said late Tuesday that "Bank of America has announced its intention to issue" and Citigroup was also making plans.

"There's a lot of momentum right now," the source said.

This is the culmination of weeks of wondering who would be the first test-case of the part of the bailout plan. Many were unsure how it would work and where the bonds would price.

Dominion prices deal

Dominion Resources priced $600 million 8.875% 10-year senior notes at 99.972 to yield 8.875% with a spread of Treasuries plus 678.9 bps.

Barclays Capital and J.P. Morgan Securities ran the books.

BNSF does five years

Burlington Northern Santa Fe priced an upsized $500 million of 7% five-year notes at 99.983 to yield 7.007% with a spread of Treasuries plus 500 bps.

The size was increased from $300 million.

A source close to the deal said it was talked in the low-500s.

There was the potential to upsize, which the company took advantage of, although only a small amount, the source said.

It took a little while to price.

"It [pricing] took a little feeling out because of the rally [Monday]," he said.

The deal went "pretty good," he said, adding that "a lot of people are buying Treasuries, and it's good for issuers."

Citigroup Global Markets Inc., Goldman Sachs & Co. and J.P. Morgan Securities were bookrunners.

New Goldmans tighten up

When the new Goldman Sachs 3.25% notes due 2012 were freed for aftermarket dealings, a trader saw that upsized $500 million of bonds having tightened to a spread over comparable Treasuries of 190 bps bid, 185 bps offered, versus the 200 bps over spread at which those bonds had priced earlier in the session.

He noted that although Goldman is a corporate issuer, the new bonds "are trading off agency desks," in view of the curious hybrid nature of the deal - sold by a corporate issuer, but with a federal guarantee, like the bonds of Fannie Mae, Freddie Mac or Sallie Mae.

Another trader - who called the deal "interesting" because of this hybrid corporate-agency nature, quoted the bonds at 190 bps bid, 180 bps offered.

Yet another trader said the bonds had gone home 13 bps tighter than their pricing levels.

Goldman's outstanding bonds were meantime mixed; a market source saw its 5.30% notes due 2012 having tightened some 50 bps to a level around 660 bps, but also pegged its 5.75% notes due 2016 having widened out around that much to the 630 bps mark.

Goldman's 6.875% notes due 2011 were quoted at 686 bps over, its 6.75% bonds due 2037 at 703 bps, and its 6.60% notes due 2012 at 713 bps.

With the Goldman deal looming over the market, a trader said that generally, "it was a mixed day" among the financials. "A lot of the focus was on where this deal was going to be priced and how it would trade."

He said that paper from other banks, like Morgan Stanley and J.P. Morgan Chase, which are expected to emulate Goldman and bring big new government-backed deals to market soon, "felt OK - they didn't really get much better. But things felt OK."

Dominon Resources is hot...

Elsewhere on the new-deal front, a trader saw Dominion Resources' new 8.75% notes due 2018 having come in to 655 bps bid, 640 bps offered, from the 678.9 bps over level at which the Richmond, Va.-based utility operator had priced its $600 million of bonds.

...but other new deals are not

The trader saw not much movement in Burlington Northern's new 7% notes due 2014; the railroad operator had priced an upsized $500 million of the bonds at 500 bps over, but those bonds had stayed around 497 bps over in the aftermarket.

Meanwhile, he saw Public Service 's 6.33% notes due 2013 trading at 413 bps bid, 408 bps offered - right around the 412.5 bps over level at which the utility operator had sold its upsized $275 million issue of new notes on Monday.

Industrials seen mixed

Among existing industrial credits, Hewlett-Packard Co.'s 4.50% notes due 2013 tightened nearly 20 bps to the 330 bps level after the computer, printer and peripherals maker released decent fourth-quarter numbers and optimistic 2009 guidance - even though its shares retreated as some analysts questioned whether the company would be able to meet those forecasts.

On the other hand, Philip Morris International's 6.875% notes due 2014 widened by more than 40 bps to the 490 bps level.

Financials' debt-protection costs tighten

In the credit-default swaps market, a trader said the cost of protecting holders of big-bank bonds against a possible default were unchanged to 5 bps tighter.

He saw debt-protection costs for major-brokerage paper anywhere from 5 bps to 30 bps tighter, with Morgan Stanley 30 bps tighter and Goldman Sachs and Merrill Lynch each 5 bps tighter, new-dealer Goldman finishing at 300 bps bid, 315 bps offered.

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