Public Service Electric & Gas sells notes; Goldman FDIC-backed issue in focus; Citi bonds tighten

By Andrea Heisinger

New York, Nov. 24 - A small note issue from Public Service Electric & Gas Co. kicked off the short week Monday.

The limited activity in the investment-grade market is expected to give way to Tuesday's somewhat experimental issue of government-backed debt from the Goldman Sachs Group Inc. The company will be the first to take advantage of the government support that was part of the U.S. financial bailout package.

Separately, the secondary market was mostly focused on Citigroup Inc. after the weekend's government bailout, with its bonds moving in a big way, tightening between 100 basis points to 150 bps.

PSE&G prices notes

Public Service Electric & Gas priced $275 million of 6.33% five-year notes Monday, continuing the market's recent string of utility issues.

The notes priced at 99.969 to yield 6.339%, or Treasuries plus 412.5 bps.

The deal was reportedly upsized from $250 million.

Banc of America Securities LLC, Mizuho Securities, UBS Investment Bank, Wedbush Morgan Securities and the Williams Capital Group ran the books.

Goldman plans FDIC-backed issue

All eyes were turned to Tuesday after news emerged late Monday that Goldman Sachs was planning to take advantage of a part of the government's bailout package.

This part of the bailout was a guarantee by the Federal Deposit Insurance Corp. for debt issued by participating banks up until June 2009.

Goldman is the first to take advantage of this offer and is considered a test case as no one is quite sure how much interest there will be from investors.

"It should be interesting," a source said. It could lead to others issuing this government-backed debt, another source said.

Although Goldman and other bookrunners were tight lipped about the deal, it is reportedly a benchmark-sized deal of up to $2 billion.

The offering is expected to be structured as three-year bonds due in 2012.

Goldman Sachs is the active bookrunner.

Citi, Goldman news dominates

The week began on a somewhat positive note due to a stock market rally related to Sunday's government bailout of Citigroup.

With equities up, a source said the tone was "definitely better."

This news came along with the sell-off of Treasury bonds, while the Citigroup buyout "reaffirmed the belief in the financial markets," the source said.

He was cautiously optimistic about the remainder of the short holiday week that is largely done Tuesday.

"People are trying to squeeze in some more issues before year's end and may try to cram a couple in this week," he said.

Tuesday's issuance may also be affected as investors and others wait for the outcome and pricing of the Goldman Sachs issue.

"We may see a couple, but it's hard to tell," a source said. "Most are waiting for that window between Christmas and Thanksgiving."

Citi tops trading, tightens sharply

Citigroup topped trading volume early Monday afternoon with its 8.4% perpetual bonds.

The list was heavy on the financial names, with JPMorgan Chase & Co. seen as second highest with its 7.9% perpetual and an issue of 6.5% notes due 2013 from Citi in the third spot.

Bonds of financial firms "moved huge" by late afternoon and were seen in 100 bps to 150 bps, a trader said. This was compared with Friday's levels of 15 bps to 20 bps wider on worries about the financial outlook.

Secondary bonds tighten

Bonds trading in the secondary market were generically tighter, a trader said, with "everything better across the board."

This can be attributed to the Citigroup bailout, the trader said.

The news of Goldman Sachs' impending FDIC-backed issue didn't have much impact on its bonds, with outstanding issues not moving around a lot.

Bank, broker CDS tighten

Credit-default swaps for bank and broker names were seen generally tighter Monday afternoon, a trader said.

Bank names were seen 5 bps to 220 bps tighter, with Citigroup at the far end of the range, coming in by 220 bps.

Broker CDS saw a less-dramatic move, tightening from 25 bps to 45 bps. Goldman Sachs was about 45 bps tighter, the trader said.

Wal-Mart bonds widen

Wal-Mart Stores, Inc. 4.55% bonds due 2013 were seen about 25 bps wider late Monday afternoon after the company reportedly settled a pricing lawsuit for $1.4 billion.

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