Schering-Plough, American General, DCP Midstream, Hasbro, Alabama Power, KfW bring new deals

By Andrea Heisinger

Omaha, Sept. 12 - The upsized $2 billion issue from Schering-Plough Corp. was the big story Wednesday, one trader said.

Other new issues came from American General Finance Corp., DCP Midstream LLC, Alabama Power Co., Hasbro, Inc. and KfW.

Schering-Plough's deal was in two tranches of 10-year and 30-year senior notes. The $1 billion of 6% 10-year notes had a spread of Treasuries plus 165 basis points with a price of 99.511 and yield of 6.066%. This tranche came in at the tight end of price talk that was 165 to 170 bps.

The $1 billion tranche of 30-year 6.55% notes had a spread of Treasuries plus 190 bps with a price of 99.39 and yield of 6.597%. This tranche also priced at the tight end of price talk that was 190 to 195 bps.

The offering was upsized from $1.5 billion.

One market source commented on the new issue premium for Schering-Plough, saying the company's outstanding 30-year bonds are being quoted between 155 and 160 bps.

That means the company paid a "steep" new issue premium of about 30 bps for the $2 billion in notes, the source said.

Hasbro downsizes

The downsized $350 million issue of notes from Hasbro was announced Monday at two tranches and was originally $600 million, sources said.

It was reduced to a single issue of 10-year notes that priced at a spread of Treasuries plus 200 bps with a price of 99.671 and yield of 6.345%. A 30-year tranche was also planned but dropped from the final transaction.

One source speculated that the downsizing was the result of recent recalls by other toy manufacturers because of safety concerns.

DCP Midstream priced $450 million in 30-year 6.75% bonds that priced at a spread of Treasuries plus 210 bps with a price of 99.516 and yield of 6.788%. The bonds are being distributed via Rule 144A.

Also pricing was American General Finance with an upsized $600 million in two tranches, doubled from a planned $300 million issue.

The $300 million tranche of five-year 5.9% notes priced at a spread of Treasuries plus 185 bps with a price of 99.80 and yield of 5.947%.

The $300 million tranche of 10-year 6.5 notes priced at a spread of Treasuries plus 210 bps with a price of 99.957 and a yield of 6.506%.

In a $150 million deal, Alabama Power had six million preference shares priced at $25 per share and dividend of 6.45%.

Banks active again

More banks entered the market with Germany's KfW pricing $4 billion of two-year 4.5% global notes that priced at par.

Bank of America Corp. reopened its recent issue of notes for the second time this week, bringing $125 million more of five-year floating-rate senior notes that priced at par with a coupon and yield of three-month Libor plus 50 bps. This brings the total amount of notes first priced on Sept. 6 up to $775 million.

Aegon NV of The Netherlands announced a new issue of perpetual capital securities. It will price by the end of the week, an informed source said.

One source was surprised at the amount of notes issued Sept. 11, especially the $3 billion in 10-year notes from IBM Corp.

"I don't think in the past we've seen that many issuers on Sept. 11," the source said.

They also commented on the new issue premium of 30 bps that IBM paid.

"In the past they wouldn't have tolerated that," they said.

Following a record August with nearly $90 billion in new issues, September is off to a good start with about $30 billion of issues pricing so far.

"I would say that the volume is normal, or even above normal," one market source said.

Spreads high, yields low

In secondary activity, a trader said that "it's just surprising where some of these yields are. We had a couple of customers looking for some paper today in particular sectors, and you look at the spreads [off Treasuries] of some of these single-A names, and you think 'whoa, that's amazing, at 150 bps over, 200 bps over, when they came at +90 a few months ago - then you look at that over Treasuries, and the yield stinks."

The trader described the situation as "a Catch-22 - everything looks really attractive until you bench it off your 4% 5-year [Treasury] and you say 'that's not so attractive at all'."

The trader noted: "I did see a lot of short paper today, at investment-grade, single-A or AA, short financial paper outside of 6.50% [yield]. You have to say that 6.50% for under one year single-A, AA paper, that looks pretty nice, compared with some of the junk stuff you can buy, and it's nice and short - but again, you look at Libor and say 'it's OK - now it looks OK,' but not great.

"So it's sort of difficult going there."

The trader saw some Radian Group Inc. 5 3/8% notes due 2015, "which I hadn't seen trade in a few days - there's certainly not a lot going on in that paper since the deal with MGIC broke up." The single-A paper was trading at a dollar price of 76 bid, 76.5 offered, for a spread of 550 bps.

The new Hasbro 6.30% notes due 2017, after pricing at 200 bps over, were not seen trading around in the aftermarket.

"They cut out the long end of that deal," which was reduced in size to $350 million from an original $600 million, the trader said, "cancelling a whole section of it - so I wouldn't be surprised if it was bought and put away."

Among the more busily traded issues Wednesday were names such as Home Depot, Weyerhaeuser and financial names like Citigroup, Morgan Stanley, Lehman Brothers and Wachovia, all but the last seen slightly easier, with spreads wider on the day.

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