Merrill Lynch, UBS, Wachovia, Goldman price as financials continue new issue monopoly

By Andrea Heisinger and Paul Deckelman

Omaha, April 22 - Financial names continued to provide the bulk of new issues Tuesday, with Merrill Lynch & Co. Inc., UBS AG, Wachovia Corp. and Goldman Sachs & Co. pricing large offerings.

A non-financial issue came from Nine Dragons Paper Ltd.

In the investment-grade secondary market Tuesday, advancing issues led decliners by around a five-to-four ratio, while overall market activity, reflected in dollar volumes, jumped about 50% Monday's sedate pace.

Spreads in general widened a bit as Treasury yields declined, with the yield on the benchmark 10-year note, for instance, tightening by 4 basis points to 3.69%.

Much market attention was paid to the behavior of the new issues that priced as major banks and brokerages sought to raise capital, including Merrill Lynch & Co., Goldman Sachs, Wachovia Corp. and JP Morgan Chase & Co.

In the credit-default swaps market, debt protection costs for CIT Group Inc., Citigroup and Royal Bank of Scotland Group plc fell as those financial companies tapped the capital markets for additional new funding they needed.

Merrill raises $7 billion, plans $2.55 billion

Merrill Lynch priced $7 billion of senior notes in two tranches.

The $1.5 billion of 6.15% five-year notes priced at 99.868 to yield 6.181% with a spread of Treasuries plus 325 basis points.

The $5.5 billion of 6.875% 10-year notes priced at 99.914 to yield 6.887% with a spread of Treasuries plus 320 bps.

Merrill Lynch, Pierce, Fenner & Smith Inc. was bookrunner.

Merrill also launched a $2.55 billion deal of perpetual non-cumulative preferred stock, amounting to 102 million shares, market sources said.

This was increased from $300 million, or 12 million shares.

Dividend talk is the 8.625% area, with the shares priced at par of $25.

Merrill Lynch is bookrunner.

Wachovia upsizes to $3.5 billion

Wachovia also priced a multi-tranche deal, with $3.5 billion in two tranches.

The size of the issue was increased, with a floating-rate tranche added.

The company priced $2.85 billion of 5.5% five-year fixed-rate notes at 99.774 to yield 5.552% with a spread of Treasuries plus 260 bps.

The $650 million tranche of five-year floaters priced at par to yield three-month Libor plus 177 bps.

Wachovia Capital Securities LLC was bookrunner.

UBS brings $2.5 billion

The other large financial issue of the day came from UBS, pricing $2.5 billion of 5.75% 10-year notes at Treasuries plus 215 bps.

UBS Investment Bank was bookrunner.

Goldman Sachs reopened a recent issue of 6.15% 10-year global notes to add $1.5 billion.

The reopened notes are priced at 100.502 to yield 6.081% with a spread of Treasuries plus 237.5 bps. The original issue priced at 270 bps.

Total issuance is now $4 billion including $2.5 billion priced on March 25.

Goldman Sachs & Co. was bookrunner.

The issue carried around a 12 bps new issue premium. It is fairly low because the company issued so recently and paid a large premium, a market source said.

China's Nine Dragons Paper priced $300 million of 7.875% five-year notes (BBB-/BBB-) at 99.493 with a spread of Treasuries plus 505.2 bps.

Merrill Lynch was bookrunner.

Great River plans mortgage bonds

An upcoming issue from Great River Energy was also announced Tuesday.

The electric company plans to price $350 million of 30-year amortized first mortgage bonds, an informed source said.

They will be priced via Rule 144A, likely on Wednesday.

Banc of America Securities LLC, Goldman Sachs and J.P. Morgan Securities Inc. are bookrunners.

Financials aim at short end

The glut of financial issuers will likely continue Wednesday, sources said, after more financials come out of post-earnings announcement blackout.

Many of them are deciding to do shorter-dated bonds, which is a recent trend, one market source said.

"They're doing it because they can," he said. "It's definitely cheaper for them. They save 100 bps over doing the longer bonds. It's really all about what the investor wants, and that's what they want right now."

Tone still favors deals

The markets are in relatively good shape right now, sources said, meaning issues should keep churning out.

"It's a little weaker in general, a touch wider, but we're still going to see issues," a source said. "We have some financials just coming out of blackout that will probably take their chunk out of the market."

There are a couple of trades waiting in the wings, both financial and industrial, but favored toward financial, a market source said.

"We're not ruling out any industrials right now," he said. "Basically, barring a disastrous open tomorrow - which we don't think will happen - we're going to see more issuers."

New Merrill, Goldman bonds firm

A trader said that Merrill Lynch's new five-year bonds tightened to around 320 bps bid, 310 bps offered, from 325 bps over comparable Treasuries, the level at which they had priced earlier in the session,

He saw The Big Bull's $5.5 billion 10-year issue likewise firm to 310 bps bid, 300 bps offered from the 320 bps spread at which they priced.

He also saw Goldman's re-opened 6.15% notes due 2018, which had priced at 237.5 bps, tighten to 232 bps bid, 228 bps offered when the re-opened bonds were freed for aftermarket dealings.

Little traction for new JP Morgans

He also said that "the focus was off" JP Morgan's $2.5 billion of 4.75% notes due 2013, which priced at 185 bps over.

"Not much is being said on them," he explained, noting that people were more interested in the new issue from Merrill Lynch, Goldman's reopened issue, and Wachovia's new bonds.

The new JP Morgans themselves were being quoted at 188 bps bid, 186 bps offered, versus the 185 bps price at which those bonds were issued.

Established bonds take a back seat

With the billions of dollars of new high-grade rated financial paper being issued, some of the existing credits in that sector were seen trading lower, among them Merrill Lynch's 4.79% notes due 2010, which widened out by around 25 bps to the 370 bps area.

Wachovia's 5.75% notes due 2018 came in by around 15 bps to 210 bps.

Financial CDS swap prices ease

In the credit-default swaps market, debt-protection costs for CIT Group were seen to have fallen to as low as 480 bps before climbing back to 500 bps, little changed from Monday.

Investors were likely heartened by the news that the big commercial finance company had raised $1.5 billion of fresh capital by selling common and convertible shares, up from the originally planned $1 billion; CIT's disclosure last month that it had been forced to draw down on its entire $7.3 billion emergency credit line after having been shut out of other borrowing had alarmed the financial markets at the time.

Raising fresh cash was seen also as a positive for Citigroup, whose CDS contract price narrowed by 2 bps to 93 bps, a day after the New York-based banking giant sold $6 billion of perpetual; hybrid preferred shares.

CDS investors also gave a vote of confidence to Royal Bank of Scotland's plan to sell nearly $24 billion of shares, with the cost of protecting investors against a default in its bonds falling more than 8 bps on the session to 67.5 bps. RBS was forced to tap the capital markets after it marked down some $12 billion of assets in response to the turmoil triggered by the subprime mortgage market crisis in the Untied States, which quickly spread to non-U.S. institutions as well.

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