Motorola, Coca-Cola, Textron price issues; McGraw-Hill announces; week starts strong ahead of Fed

By Andrea Heisinger and Paul Deckelman

Omaha, Oct. 29 - Several companies took advantage of Monday's ideal market conditions, including Motorola, Inc., The Coca-Cola Co. and Textron Financial Corp.

"The open was fairly decent and it looked like more than a few people wanted to get in ahead of the Fed," a market source said.

"Books were strong, everything looked great today."

The Federal Reserve meeting that ends Wednesday is anticipated to bring a cut of 25 basis points to interest rates, sources said last week.

This could mean a slowdown in new issues ahead of the meeting.

"I'd be surprised if there were more than a couple of deals tomorrow," a source said.

The secondary market remained fairly evenly balanced between advancing issues and decliners, and with volume essentially unchanged from Friday's weak levels.

Merrill Lynch bonds were seen little changed, as Wall Street awaited the official word of CEO Stanley O'Neal's less-than-voluntary exit from the company amid the recently reported heavy losses and his alleged efforts to start unauthorized merger talks, as well as some indication who his successor would be.

Most of the rest of the financial sector was also pretty quiet, as participants girded themselves for this week's pivotal Federal Reserve board meeting, at which a quarter-point cut in key interest rates is expected to be announced. There were some price gyrations in Washington Mutual Inc.'s recently issued 10-year bonds. Countrywide Financial Corp. paper - a big gainer on Friday - was seen having given up some of those gains.

Motorola brings $1.4 billion

Motorola priced an upsized issue of $1.4 billion in three tranches. The issue was launched at $1 billion in three tranches.

The $400 million tranche of 5.375% five-year notes priced at 99.911 to yield 5.397% at a spread of Treasuries plus 135 bps.

The $400 million tranche of 6% 10-year notes priced at 99.751 to yield 6.033% at a spread of Treasuries plus 165 bps.

The $600 million tranche of 6.625% 30-year notes priced at 99.389 to yield 6.672% at a spread of Treasuries plus 200 bps.

All of the tranches priced almost exactly at guidance, a source close to the deal said.

Bookrunners were J.P. Morgan, Citigroup and Deutsche Bank.

Coca-Cola priced $1.75 billion of 5.35% 10-year notes at 99.851 to yield 5.369% at a spread of Treasuries plus 100 bps.

The issue priced a little tighter than guidance, a source said.

Bookrunners were Banc of America Securities and Citigroup.

The $400 million issue of 5.125% three-year notes from Textron priced at 99.901 to yield 5.161% at a spread of Treasuries plus 137 bps.

Bookrunners were Deutsche Bank, Merrill Lynch and UBS Investment Bank.

An issue from U.K. retailer Tesco priced but terms were unavailable for the Rule 144A deal Monday. Bookrunners were Citigroup and J.P. Morgan.

McGraw-Hill plans deal

An upcoming issue was announced from McGraw-Hill Cos. The company will issue senior unsecured notes in three tranches of five, 10 and 30 years.

The issue likely will price Tuesday, a source close to the deal said. Bookrunners are Deutsche Bank, J.P. Morgan and RBS Greenwich Capital.

Although volume was fairly high to start the week, many issuers are likely waiting until after the Fed meeting.

"There's nothing firm for the rest of the week," a market source said of pending deals. "That's kind of the way it's been, but I think we'll see more after the Fed."

Another source said that "at most we're sitting on a couple of deals" and that most of the week's issuance will come on Wednesday and Thursday.

Merrill holds levels on no CEO news

With the embattled Merrill chief executive O'Neal's ouster and his replacement by someone else all but officially announced and confirmed - news reports late Monday were still being phrased in terms that the shuffle was "expected" - Merrill Lynch's bonds, which had gyrated around last week when the big investment bank took a breathtakingly huge $8.4 billion of write-downs on the way to a nearly $2.3 billion quarterly loss, the worst in its 93-year history, were seen pretty much hanging in around recent levels, albeit in still fairly active trading on an otherwise nothing day, market participants said.

One source saw the company's 6.05% notes due 2012 trading at a yield of 5.63%, translating to a spread of around 159 basis points over Treasuries, about where they had been last week, on "some decent volume."

The source saw the company's 6.40% notes due 2017 holding within a narrow trading range yielding between 6.13% and 6.16%, or about 175 to 178 bps over, "which is basically the same as they were on Friday." And there were "almost no trades worth making note of" in Merrill's 6.11% notes due 2037, with the largest for $175,000, a couple in the $100,000 range and the rest "literally just odd lots," the source said, at a yield of around 6.71%, or about 205 bps over, "again, just about where we were on Friday."

A trader agreed that the Merrill Lynch paper was hanging in and "kind of holding its own," unchanged by any news, or the lack of same. "Everything that was going to happen has happened" in terms of causing any price change in the paper. "It was really kind of a non-event, to be honest," he said, because O'Neal's ouster has been so widely predicted and expected. "If anything, the paper has done a little bit better."

Merrill CDS narrows

A trader quoted the cost of a credit default swaps contract linked to Merrill Lynch's debt at 75 bps bid, 80 bps offered - 1 bp wider than its opening level, but still well in from levels around 83 bps seen late Friday, when that debt-protection cost had narrowed by some 4 bps on the session on investor expectations that O'Neal would be sacked. CDS costs move inversely with investor confidence in a company's prospects. That tightening was in line with a big rise in the company's shares Friday and a more modest gain on Monday, on investor optimism about the prospect of housecleaning at the top, along with the possibility that the Big Bull might even become an acquisition target, now that O'Neal's reported overtures to Wachovia Corp. were being seen as a signal that Merrill could be "in play."

Among other brokerage names, the cost of hedging against a default on Bear Stearns paper stood at 98 bps bid, 103 bps offered, 3 bps wider on the day, Lehman Brothers at 94 bps bid, 99 bps offered, 1 bp wider than the opening, and Morgan Stanley at 62 bps bid, 67 bps offered, 2 bps wider on the day.

WaMu bounces around

Elsewhere the trader saw Washington Mutual's recently priced 7¼% notes due 2017, $500 million of which priced last Thursday at 300 bps off Treasuries, starting out the session having widened sharply from their issue level, trading at 310 bps bid, 308 bps offered; however by late afternoon, they were once more trading at bid levels around 300 bps over, "so they seem to be doing a little better."

Activity in the new WaMu bonds was described by a market source as very brisk. That source had pegged the bonds at around 304 bps around mid-afternoon.

"It was a very quiet day," the first trader said, with the WaMu bonds as the focus of the day at his desk.

Countrywide backs off

Late in the session, Countrywide Financial's 5.80% notes due 2012 were seen having widened out notably from the levels they had held on Friday, when the bonds soared the equivalent of more than 3 points in dollar-price gains and spreads had tightened by an eye-popping 80 bps to 90 bps pretty much across the capital structure, participants said, after the Calabasas, Calif.-based mortgage lender predicted that despite its $1.2 billion third-quarter loss, it would be back in the black during the current fourth quarter and on into 2008.

On Friday, those bonds, riding the crest of a wave of investor enthusiasm, were seen having come in by over 90 bps to 481 bps over - but on Monday, they had moved back out by more than 60 bps to around the 543 bps mark. That coincided with a pullback in the company's New York Stock Exchange-traded shares, which had soared some 32% on Friday, but which were down by around 3% Monday, as several analysts weighed in; the general thrust of their commentary was that with the housing market still in a troubled state, it would be very difficult for any mortgage lender to credibly go out on a limb and assert with any authority that it will be profitable both this quarter and next year.

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