National Rural Utilities prices $700 million trust bonds; ITC sells $385 million; Target better

By Paul Deckelman and Sheri Kasprzak

New York, Jan. 15 - National Rural Utilities Cooperative Finance Corp. led a relatively light day of pricing action in the investment grade market Tuesday with its $700 million offering of collateral trust bonds.

In the investment-grade secondary market Tuesday, advancing issues outnumbered decliners by an eight-to-five ratio. Overall activity, reflected in dollar volume, was up about 21% from Monday's levels.

One of the big names seen trading around was Target Corp., following Monday's pricing of the big discount retailer's $4 billion mega-deal. The new bonds were seen having firmed smartly, and even its existing bonds - which retreated on Monday amid concerns over a new-supply glut - tightened modestly.

Also trading up were the recently priced bonds of United Parcel Service, Inc. However, the new Southern California Edison Co. deal did not do well in the aftermarket.

In the financial sector, the widely-anticipated big loss posted by banking giant Citigroup did not faze investors. Its bonds were seen trading tighter and its credit-protection costs were steady.

Back in the primary, National Rural's 5.45% bonds (A1/A+/A+) were priced at 99.777 with a yield to maturity of 5.479%. The spread was Treasuries plus 180 basis points.

The bonds are due Feb. 1, 2028.

Deutsche Bank Securities, Lehman Brothers and RBS Greenwich Capital are the joint bookrunners.

National Rural plans to use the proceeds to refinance a maturing term debt facility and to repay short-term debt, primarily commercial paper.

Headquartered in Herndon, Va., National Rural is a non-profit cooperative association that provides its members with financing to supplement the loans of the Rural Utilities Service of the United States Department of Agriculture.

Activity elsewhere light

Meanwhile, in the broader market, market insiders said pricing action was relatively quiet.

"There's not a lot going on and we really haven't seen much coming up for the week," said one sell-side source Tuesday afternoon.

"A few things should be coming up here and there this week."

Another market source said things have been slow for quite some time.

"I really don't have anything that I've seen for the week," he said. "It's been a slow month. Things tend to be like this near the first of the year. Hopefully things will pick up soon."

Despite the light activity, ITC Holdings Corp. priced $385 million in senior notes.

The Rule 144A notes due 2018 have a 6.05% coupon.

Proceeds from the offering, according to the company's statement, will be used to refinance debt used to acquire ITC Midwest LLC, its wholly owned subsidiary. The proceeds will also be used to fund the acquisition of the electric transmission assets of the Interstate Power and Light Co.

No further details were immediately available.

ITC, based in Novi, Mich., invests in the electricity transmission grid.

Citi may bring preferreds

In other news, Citi announced Tuesday that it may price an offering of straight preferred stock later this year.

An insider at Citi told Prospect News that the bank is "considering the offering in the future," but noted that there are no further details since the offering terms have not been hammered out yet.

The preferreds sale is part of a series of financial actions Citi is planning to strengthen its capital base, including a $12.5 billion offering of convertible preferreds in a private offering and $2 billion in an offering of publicly offered convertible preferred.

Bull's-eye for new Targets

A trader said that the new three-part bond deal priced Monday by Target had moved up notably once it was freed for aftermarket activity. The bonds, he said, "have done quite well."

He saw Target's new 5.125% notes due 2013, which priced at a spread of 215 basis points over comparable Treasuries, as having tightened to 201 basis points bid, 196 bps offered.

Target's new 6% notes due 2018, which priced at 235 bps over, had narrowed to 227 bps bid, 225 bps offered. And its new 7% bonds due 2038, which priced at 270 bps over, had tightened to 258 bps bid, 257 bps offered.

Target's existing 6.50% bonds due 2037, which on Monday had widened sharply to about 257 bps from prior levels around 230 bps, on investor concern about all of the new supply, narrowed a bit Tuesday to 254 bps, their spread tightening limited somewhat by the more than 10 bps narrowing seen in Treasury yields.

UPS bonds deliver gains

Another recently priced issue seen doing better was UPS, whose bonds priced on Thursday.

The trader saw its 4.50% notes due 2013, which had priced at a 145 bps spread, as having come in to 128 bps bid, 121 bps offered. Its 5.50% notes due 2018 narrowed to 150 bps bid, 148 bps offered from their 165 bps spread at pricing. And its 6.20% bonds due 2038 tightened to 170 bps bid, 164 bps offered from a pricing spread of 180 bps.

'Priced too cheaply'

But the trader said that overall, "a lot of accounts are still wary of all of this new supply" coming on to the market.

He said that the new Target and UPS deals were doing as well as they were because "they were priced way too cheaply" in the interest of getting the deals done. "The market is re-pricing them now."

He said that the new Southern California Edison 30-year bonds, "didn't do so well" in secondary dealings. The bonds, which priced Monday at 160 bps over, had widened Tuesday to 165 bps bid, 158 bps offered.

Citi holds its own

The nearly $10 billion fourth-quarterly loss posted by Citigroup Tuesday, along with its $18 billion write-down tied to mortgage-related losses, had no real negative impact on the company's bonds, since it had been widely expected and was already priced in. Citi also announced it had lined up some $12.5 billion in new funding, including nearly $7 billion from the government of Singapore and $2 billion to be raised through the sale of convertible preferred securities to other investors.

Citi's 5.25% notes due 2012 were seen having tightened nearly 20 bps to just under 150 bps.

A trader meantime said that in the credit-default swap spreads market, debt-protection costs for Citi paper stood at 82 bps bid, 87 bps offered - unchanged on the day.

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