Wells Fargo taps market as Fed meeting concludes; Choice Hotels offers $400 million notes

By Aleesia Forni and Andrea Heisinger

New York, June 20 - Activity in the high-grade bond market went from hot to cold on Wednesday as potential issuers awaited an announcement from the two-day Federal Reserve Federal Open Market Committee meeting.

Wells Fargo & Co. sold $2.75 billion of notes in two tranches - one fixed rate and one floating rate, each with three-year maturities.

The fixed-rate bonds tightened 3 basis points in the secondary, a market source said.

A source who worked on the deal said it was priced after the announcement from the Fed.

The day's lack of deals was in contrast to the nine priced on Tuesday when issuers saw a window and jumped in quickly to sell bonds.

There was an offering of $400 million of 10-year senior notes announced late on Tuesday from Choice Hotels International Inc. After the sale was announced, Standard & Poor's cut the ratings on the notes from the lodging company to junk at BB, which was a drop from BBB. Moody's Investors Service also put its Baa2 rating on review for downgrade.

In the morning, a source at one of the desks working on the trade said it was "probably junk."

A sale of preferred stock was priced by Corporate Office Properties Trust.

There was news out of the Fed meeting in the afternoon when chairman Ben Bernanke said in a press conference that there would be an extension of its asset-purchase program through the end of the year.

This was coupled with the Fed's view that unemployment rates would likely remain higher than expected.

The Wells Fargo deal came out soon after the announcement, riding on the market's high from the previous day.

"We haven't seen a financial for a while," a source said.

Thursday could be busy as the market tone continues to hold and favorable rates continue to draw issuers in to the market.

"I know we have several items in house," a syndicate source said late in the day, "could be kind of busy again."

Among Tuesday's deals seen in trading, the three-year notes from National Bank of Canada were quoted 5 bps improved.

The Markit CDX Series 18 North American Investment Grade index tightened 1 bps on Wednesday to a spread of 114 bps.

Investment-grade bank and brokerage credit default swaps costs declined on Wednesday.

Bank of America's CDS costs tightened 3 bps to 265 bps bid, 275 bps offered. J.P. Morgan's CDS costs declined 5 bps to 141 bps bid, 147 bps offered. Wells Fargo's CDS costs also tightened 3 bps to 101 bps bid, 107 bps offered.

Brokers tightened. Merrill Lynch's CDS costs were 3 bps tighter at 280 bps bid, 290 bps offered. Morgan Stanley's CDS costs declined 3 bps to 365 bid, 375 bps offered. Goldman Sachs' CDS costs also tightened 3 bps to 280 bps bid, 290 bps offered.

Wells Fargo's $2.75 billion

Wells Fargo sold $2.75 billion of notes (A2/A+/AA-) in two tranches, a source close to the trade said.

The $750 million of three-year floating-rate notes priced at par to yield Libor plus 92 bps.

A second part was $2 billion of 1.5% three-year notes priced a spread of Treasuries plus 115 bps.

The fixed-rate notes were sold tighter than whispered guidance in the 120 bps to 125 bps range and at the low end of revised talk of 115 bps to 120 bps.

The notes traded at 112 bps bid, 108 bps offered, near the end of New York's session.

The floating-rate tranche was talked at the Libor equivalent, the source said.

Wells Fargo Securities LLC ran the books.

The financial services company is based in San Francisco.

Corporate Office preferreds

Corporate Office Properties Trust priced a $150 million offering of 7.375% series L cumulative perpetual preferred shares, according to a press release issued Wednesday.

Pricing was at the low end of talk.

A trade saw the paper trading at $24.97.

There is a $22.5 million over-allotment option. The preferred shares were sold at $25 each to the public.

The real estate investment trust will apply to list the preferred shares on the New York Stock Exchange under the ticker symbol "OFCPL."

Wells Fargo Securities and Bank of America Merrill Lynch were bookrunners.

Proceeds will be contributed to the operating partnership, which will use the funds to pay down its unsecured revolving credit facility and for general corporate purposes, including potential future full or partial repurchases or redemptions of its outstanding preferred shares.

Corporate Office Properties is based in Columbia, Md.

National Bank of Canada firms

National Bank of Canadašs 1.5% senior notes due 2015 traded stronger on Wednesday at 115 bps bid, 105 bps offered, according to a trader.

The Canadian bank priced a U.S.-dollar denominated $1 billion offering of the three-year senior notes (Aa2/A/) on Tuesday at a spread of Treasuries plus 120 bps.

The financial services company is based in Montreal.

AT&T tightens

Also in the secondary market, AT&T Inc.'s bonds due 2019 tightened 6 bps on Wednesday, closing the session at 69 bps bid.

The Dallas-based phone and internet services provider priced $2.25 billion 5.8% notes in January 2009 at 300 bps over Treasuries.

Citi firms

In other trading, Citigroup's 6.375% notes due 2014 tightened 3 bps to 269 bps bid, according to a market source.

The bank priced $2.5 billion five-year notes at Treasuries plus 380 bps on Aug. 5, 2009.

Stephanie N. Rotondo contributed to this review

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