Bear Stearns, AT&T, Bank of NY Mellon price ahead of expected Fed rate cut

By Andrea Heisinger and Paul Deckelman

Omaha, Jan. 29 - A positive tone helped urged more investment-grade issuers to enter the market Tuesday, including more financials.

Bear Stearns Cos. Inc., AT&T Inc. and Bank of New York Mellon Corp. priced issues.

Merrill Lynch also reportedly priced an issue of five-year notes for itself, but terms were not available at press time.

In the investment-grade secondary market Tuesday, declining issues narrowly shaded advancers, while overall activity, reflected in dollar value, jumped nearly 61% from Monday's reduced levels.

Traders said that as has been the case over the past few sessions, with the heavy load of new issuance, aftermarket trading in those new deals has been the main driver in secondary dealings. On Tuesday, much attention was focused upon the new issues from AT&T and Bear Stearns.

Bear brings $3 billion

Bear Stearns priced $3 billion in 7.25% 10-year senior global notes at 99.726 to yield 7.289% at a spread of Treasuries plus 362.5 basis points.

Bear Stearns & Co. Inc. was bookrunner.

Bank of NY priced $700 million in two-year floaters at par to yield three-month Libor plus 40 bps.

J.P. Morgan Securities Inc. and Morgan Stanley & Co. Inc. ran the books.

Stability helps AT&T

AT&T had the largest issue of the day, with $4 billion in three tranches.

Two of the tranches were reopenings of a previous issue.

The company reopened its 4.95% five-year notes to add $750 million. They were priced at 101.975 with a spread of Treasuries plus 163 bps.

This was tighter than price talk which was in the 175 bps area, a source close to the deal said.

This brings the total issuance for the tranche to $1.75 billion, including $1 billion priced on Dec. 3, 2007.

They also priced a new issue of $2.5 billion in 5.5% 10-year notes at 99.780 with a spread of Treasuries plus 185 bps. This was tighter than price talk of 187.5 bps area, the source said.

The third tranche was reopening its 6.3% 30-year notes to add $750 million. They priced at 97.713 with a spread of Treasuries plus 210 bps.

This brings the total issuance to $2.75 billion including $2 billion priced Dec. 3, 2007.

The reopening of the 30-year notes "just kind of happened," the source said.

The issue went well owing to the stability of the market Tuesday.

"It was very good," a source said. "People definitely wanted to buy paper today and felt good about it. There was good demand."

Brokers pay up

Brokers are paying more than banks to get issues into the market, a source said.

They cited Bear Stearns as paying 45 to 50 bps in new issue premiums, with Merrill Lynch paying about 20 to 25 bps.

Waiting for the Fed

Looking ahead, with the Federal Reserve likely announcing a rate cut of 50 bps Wednesday after the wrap of its two-day meeting, the day could go either way.

One source said their prediction was a quiet Wednesday as issuers waited to see if the rate cut actually happened and what the amount was.

"As long as the equity and credit market are benign, I think people are going to wait and we're going to see a big Thursday," the source said.

Another said it's possible issuers could jump into the market right away after a cut is announced.

"Assuming the Fed doesn't surprise everyone, there should be a 50 point cut," a market source said. "As long as the comments aren't too crazy, I wouldn't be surprised to see people launch and jump into the market right away Wednesday."

Secondary focuses on new deals

A trader said that secondary market activity over the past few days has been "new issue driven,"

He said that "they price them at levels to get the deals done, and then they trade tighter in secondary. It kind of re-prices outstanding spreads" or those same companies' bonds, which before the new deals had in most cases been considerably tighter, "then they converge in the secondary trading. The new issue price is so cheap that it tightens up, and the outstanding stuff widens out, and they kind of meet somewhere in the middle."

He saw the new Bear Stearns 7.25% notes due 2018, which earlier in the session had priced at a spread of 362.5 basis points over comparable Treasuries, coming in to a level of 350 bps bid, 348 bps offered late in the session.

Also tightening - although considerably more modestly - were AT&T's new 5.125% notes due 2015, which priced at 185 bps over; when they got to the secondary market, he said, "they were wrapped around" the 180 bps mark.

Bear wider, Sprint mixed

Although most activity was in the newly priced bonds, here and there was notable movement on outstanding issues. For instance, Bear Stearns' existing 6.40% notes due 2017 - in line with the trader's predictions about the behavior of the outstanding bonds of a company bringing a new issue - were seen having widened out by about 15 bps to the 330 bps level.

Sprint Nextel's bonds, meantime were seen mixed, with the Kansas City, Mo.-based wireless communications operator's 7.375% notes due 2015 tightening up by around 15 bps to 20 bps to the 525 bps level, while its 6.875% notes due 2013 were 15 bps wider to around the 560 bps level.

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