CIT Group, Dominion, Vepco, Anheuser-Busch, Barclays enter market, pay high premiums to do so

By Andrea Heisinger and Paul Deckelman

Omaha, Nov. 27 - Several new issuers entered the market Tuesday including CIT Group Inc., Dominion Resources, Inc., Virginia Electric & Power Co., Anheuser-Busch Cos. Inc. and Barclays Bank plc.

Headlines overnight, including those from Citigroup, made for a better market open, a source said, which encouraged some issuers.

In the secondary market advancing issues were seen taking a roughly seven-to-six lead over declining issues.

News that Citigroup had lined up a $7.5 billion investment from oil-rich Abu Dhabi caused the company's bonds to firm in morning trading, although a trader said that they "couldn't hold that level" throughout the session,.

Of more interest was the new CIT Group bond issue, which was said to be well over subscribed.

In the credit-default swaps market, the cost of protecting investors in bank and brokerage debt against a possible default via CDS contracts was seen having tightened from Monday levels, probably helped by the Citigroup news.

CIT sells $2 billion

The issue from CIT was the "big deal of the day," according to one market source.

The company issued $2 billion in 7.625% five-year notes at 98.983 to yield 7.875% at a spread of Treasuries plus 449.2 basis points.

Bookrunners were Banc of America, Citigroup, Lehman Brothers and Merrill Lynch.

"This is the first issuer that's been really hit bad coming to the market," a source said. "We're hearing it's going at a large coupon."

Also Tuesday, Dominion and its subsidiary, Virginia Electric, each priced issues.

Dominion priced $350 million in 6% 10-year senior notes, downsized from $400 million. They priced at 99.719 to yield 6.038% at a spread of Treasuries plus 210 bps.

It was talked at 200 to 205 bps, a market source said, which meant about a 30 to 35 bps new issue premium.

Virginia Electric priced $1.05 billion in five and 30-year tranches, upsized from $1 billion.

The $600 million tranche of 5.10% five-year notes priced at 99.966 to yield 5.108% at a spread of Treasuries plus 175 bps. The $450 million tranche of 6.35% 30-year notes priced at 99.775 to yield 6.367% at spread of Treasuries plus 200 bps.

Bookrunners for both Dominion and Virginia Electric were Goldman Sachs, Merrill Lynch, Morgan Stanley and Wachovia.

Anheuser-Busch priced $500 million in 5.5% notes due 2018 at 99.59 to yield 5.552% at a spread of Treasuries plus 160 bps.

Bookrunners were Morgan Stanley, Goldman Sachs and UBS Investment Bank.

The issue came at the tight end of price talk, which was 160 to 165 bps.

"I'm guessing a 50 bps new issue premium on this one, but it has a change of control so they may get it a little cheaper," a market source said.

The other issue for the day was from Barclays, with $1.25 billion in 6.05% 10-year subordinated notes priced at 99.733 to yield 6.086% at a spread of Treasuries plus 215 bps. Barclays was sole bookrunner for the issue.

AT&T Inc. sold $500 million proceeds from an unregistered offering of zero coupon put notes due 2022, according to a Securities and Exchange Commission filing. Proceeds will be used for general corporate purposes.

Better stocks draw new bonds

An improvement in the stock market Tuesday may have signaled some issuers that it was OK to enter the bond market.

"The stock market was up 170 points, and a lot of people look to that for signs of stability," a source said.

"There's a lot of money out there and we still have a decent amount of backlog."

Despite the steep premiums issuers have been paying to get in the market, some are just happy to get the issue out of the way, a source said.

"With each and every one that came today I can guarantee they had a decent chunk sold before they launched," the source said.

The rest of the week's volume remains on a day-to-day basis depending on market conditions.

"We haven't seen the extent of the backlog, but we've seen some of it leaking into the market," a source said.

Tuesday's successful issues may provide encouragement for other companies who have been holding back because of volatility.

"Barring a disastrous open tomorrow I think we could definitely see more," a source said.

Citi gains, slips

In secondary action, A trader said that the Citigroup equity injection caused its bonds to "get a little tighter," by about 5 bps, "but they didn't really hold their level too much."

A market source elsewhere said that Citi's bonds ended mixed, with 5.5% notes due 2017 having tightened several bps to 167 bps over Treasuries - although its 3 5/8% notes due 2009 widened out a bit to 195 bps over. The former tightened the equivalent of almost a full 1 point rise in its price, while the latter had widened the equivalent of a 1½ point retreat.

He said the financial sector in general "didn't run up," but was "a little firmer. It felt better."

CIT tighter in trading

However, the big focus of the day was the CIT deal. He saw the new 7 5/8% notes due 2012 trading at 440 bps over - a 10 bps pickup from the 450 bps spread at which the bonds had priced.

He said "it seemed well over-subscribed, from what we understand," with as much as $4 billion in orders for the $2 billion of bonds.

Broker CDS better

In the CDS market, a trader said, brokerage CDS costs tightened a good 5 to 10 bps, with Bear Stearns going out at 187 bps bid, 197 bps offered, Lehman Brothers at 134 bps bid, 144 bps offered, Merrill Lynch at 139 bps bid, 140 bps offered and Morgan Stanley at 108 bps bid, 118 bps offered.

He also saw bank CDS levels about 3 to 7 bps tighter across the board - except for Citigroup, whose debt-protection costs tightened a good 10 bps to 78 bps bid, 86 bps offered, before ending at 81 bps bid, 89 bps offered, still 7 bps in on the day.

Countrywide off despite reassurances

Elsewhere, the nominally investment-grade rated Countrywide Financial Corp.'s 6¼% notes due 2016 were seen by a trader to have fallen 1 point to 58 bid, 59 offered. He also saw its 3¼% notes due 2008 unchanged at 87 bid, 88 offered. At another shop, a trader pronounced the company's bonds "mostly lower," noting that the 61/4s were trading with "a 58 handle" for most of the day.

A market source saw the widely traded 61/4s ending up slightly at 59, helped off its earlier lows by some large-block trading late in the session - but its 5 5/8% notes due 2009 were seen off 2½ points on the day at 74.5.

Yet another source called the 61/4s down nearly a point at 59, although its 4 1/8% notes due 2009 were actually up more than a point at 73.5, both on brisk trading volume.

Countrywide's recently battered NYSE-traded shares, meantime, gained 33 cents, or 3.82%, to close at $8.97 on volume of 45 million, somewhat above the usual activity level.

Countrywide, hard-hit by the credit crunch and recently reeling from suggestions that its liquidity could dry up because of troubles at Freddie Mac - a major buyer of mortgages from companies like Countrywide which itself has now run into some financial trouble - was in a damage-control mode on Tuesday.

Its managing director of investor relations told an audience of investors at a Friedman, Billings, Ramsey conference in New York that Countrywide's liquidity and capital are adequate to meet the company's operating and growth needs and to fund all debt maturities through 2008 without raising new debt. He also said that the bad news from Freddie Mac or other government-sponsored enterprises would not have a material impact on Countrywide's ability to fund its loans, and defended the more than $50 billion of advances which the company got from a branch of the Federal Home Loan Bank, borrowing which came under attack Monday by frequent Countrywide critic Sen. Charles Schumer, D.-N.Y. (see related story elsewhere in this issue).

Countrywide's bonds and shares got clobbered last week after government-sponsored mortgage financier Freddie Mac reported that it lost $2 billion in the third quarter, and said it reserved $1.2 billion for bad loans. Analysts predicted that those losses and the slowdown in the housing market could severely limit Freddie Mac's ability to purchase pools of mortgages from lenders such as Countrywide, which generate capital to keep making new loans by securitizing massive bundles of loans they have written and selling them, either to private-sector investment banks or to government-sponsored enterprises such as Freddie Mac and its larger companion, Fannie Mae. While investment banks have recently been pulling in their horns as far as buying loans from the mortgage lenders, the GSEs had seemed like reliable financing sources of last resort - until last Tuesday's Freddie Mac results led to market fears that this funding source too could dry up.

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