Viacom upsizes sale, R.R. Donnelley offers bonds, tone weakens; recent deals widen in trading

By Andrea Heisinger and Paul Deckelman

New York, Aug. 19 - Viacom Inc. and R.R. Donnelley & Sons Co. showed Wednesday that the procession of low-rated high-grade names pricing deals is showing no signs of slowing down.

The Viacom sale gained interest as the day progressed, a source close to the sale said.

Both of the deals were done by mid-afternoon.

Among the established issues in the secondary arena on Wednesday, a market source said the CDX Series 12 North American high-grade index widened by 3 basis points to a mid bid-asked spread level of 123 bps.

Advancing issues - which led decliners for a fifth straight session on Tuesday, albeit by a narrow margin - kept their advantage on Wednesday, leading by a nearly four-to-three ratio.

Overall market activity, reflected in dollar-volume totals, rose nearly 5% from Tuesday's pace.

Spreads in general were seen wider, in line with lower Treasury yields; for instance, the yield on the benchmark 10-year fell by 6 bps on Wednesday to 3.45%.

The new Viacom five-year bonds were seen to have tightened a little from the spread versus comparable Treasury issues at which they priced earlier in the session - but the 10-year piece was seen little changed.

Other recently priced bonds, including Tuesday's issues from Watson Pharmaceuticals Inc., Boardwalk Pipelines, LP and Air Products & Chemicals Inc., were seen to have widened from Tuesday's levels, particularly the Boardwalk issue.

Viacom increases sale

Media company Viacom sold an upsized $850 million of senior notes in two tranches.

The amount was initially $750 million, according to a press release.

The $600 million of 4.375% five-year notes priced at Treasuries plus 210 bps. It was officially talked at 210 to 215 bps, a source close to the deal said. The notes were "whispered more rich than guidance that came out," he added.

The $250 million tranche of 5.625% 10-year notes priced at Treasuries plus 225 bps. Guidance was 225 to 230 bps, the source said, with initial whispers tighter than where the tranche priced.

The sale was ultimately successful, but coming into the day it was "weak in the sector," the source said. "Sellers in Europe were coming in." By afternoon, the books had been added to, he said.

Bookrunners were Citigroup Global Markets, Deutsche Bank Securities and RBS Securities.

Proceeds will be used to fund a tender offer for the company's 5.75% notes due 2011, and to repay borrowings under a revolving credit facility and commercial paper program.

Viacom is based in New York City.

R.R. Donnelley offers seven-year notes

R.R. Donnelley & Sons priced $350 million of 8.6% seven-year senior unsecured notes to yield 8.875%.

They priced at Treasuries plus 580.5 bps.

Bank of America Merrill Lynch and J.P. Morgan Securities ran the books.

Proceeds will be used to fund an offer to purchase for cash notes due 2012 and up to the maximum tender amount of notes due 2010 being tendered.

The communications company is based in Chicago.

Weaker tone invades primary

The previous day's optimism waned slightly by late Wednesday as issuance slowed and the tone weakened.

A market source said that "the tone changed, in general, by mid afternoon. It was weaker in the [industrial] sector."

Both of the day's deals were not necessarily affected by the downturn, although the Viacom sale took longer to get going.

"I'm not sure how things looked in the secondary," a source said. "Things were definitely wider."

There may be a "couple more" issues coming in Thursday, the source said, adding that Friday will be "pretty dead."

Viacom short bonds better

When the new Viacom bonds were freed for secondary dealings, a trader saw its $600 million of 4.375% notes due 2014 having tightened a little to 203 bps bid, 198 bps offered, in from the 201 bps over level at which the bonds had priced earlier in the session.

However, the company's new $250 million of 5.625% notes due 2019, which had priced at 225 bps over, were seen about unchanged in the aftermarket, at 225 bps bid, 220 bps offered

Boardwalk gets bopped

Among Tuesday's new deals, Boardwalk Pipeline's $350 million of 5.75% notes due 2019 widened out the most, with a trader seeing the Houston-based natural gas transportation and storage company's new bonds Wednesday at 265 bps bid, 257 bps offered - well out from the 225 bps level at Tuesday's pricing.

Watson widens, a little

Also seen wider on the day - though still well in from its pricing level-was Corona, Calif.-based drugmaker Watson Pharmaceuticals' $850 million two-part issue, both parts of which had priced at 262.5 bps over and then firmed in the aftermarket late Tuesday to about 242 bps.

In Wednesday's dealings, its $450 million of 5% notes due 2014 were quoted at 248 bps bid, 244 bps offered, while its $400 million of 6.125% notes due 2019 was right around that level as well, at 247 bps bid, 243 bps offered.

Air Products floats back up to pricing spread

Allentown, Pa.-based industrial gasses company Air Products & Chemicals' new $400 million of 4.375% notes due 2019 were being quoted Wednesday at 87 bid, 82 offered, slightly wide of the 84 bps bid, 80 bps offered level at which it was trading late Tuesday.

Those bonds had priced earlier in Tuesday's session at 88 bps over.

Dow bonds busy, but mixed

From that same sector, Midland, Mich.-based Dow Chemical Co.'s 8.55% notes due 2019 was one of the busiest issues on the day, with over $63 million having traded by mid-day. A market source saw those bonds having widened out by some 37 bps on the session, to 410 bps over.

Dow's recently priced 5.90% notes due 2015 meantime, were seen having tightened by about 30 bps on the session to the 280 bps level. Those bonds are trading well in from the 325 bps over level at which the $1.25 billion issue priced on Aug. 4 as part of a $2.75 billion three-part deal.

Citi bonds seen better

Among the financials, Citigroup Inc.'s 6.375% notes due 2014 were actively traded, with over $55 million of them changing hands at midday. The New York-based banking giant's bonds were quoted 12 bps tighter on the day at 355 bps over.

Bank, brokerage CDS costs steady

A trader who follows the credit default swaps market said that the cost of protecting holders of big-bank debt against a possible event of default, which on Tuesday had narrowed by anywhere from 5 bps to 15 bps, was unchanged on Wednesday.

He also said that CDS costs for major brokerage company paper, which had tightened by 5 bps to 10 bps on Tuesday, was likewise unchanged on Wednesday.

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