XTO, E.On, RBC price large deals; bank earnings less negative than feared, issuance seen up Wednesday

By Andrea Heisinger and Paul Deckelman

Omaha, April 15 - A handful of issues came to the market Tuesday, but those that did from XTO Energy Inc., E.On International Finance BV and Royal Bank of Canada were all multi-billion- dollar deals.

In the investment-grade secondary market Tuesday, advancing issues trailed decliners by around a five-to-four ratio, while overall market activity, reflected in dollar volumes, jumped nearly 29% from Monday's pace.

Spreads in general narrowed as Treasury yields continued to rise, with the yield on the benchmark 10-year note, for instance, widening out by 9 basis points to 3.60%.

The new XTO Energy bonds were seen to have firmed a little when they broke into the aftermarket.

However, Monday's Dell Inc. issue was seen to have widened a little from its pricing level.

Bank and brokerage credit-protection spreads were seen to have tightened on the day.

But Washington Mutual Inc.'s paper was taking it on the chin as the top thrift predicted big chargeoffs - in the $12 to $19 billion range - over the next several years.

XTO prices at tight end

XTO priced $2 billion of senior notes in three tranches.

The $400 million of 4.625% five-year notes priced at 99.888 to yield 4.651% with a spread of Treasuries plus 197 basis points.

The $800 million of 5.5% 10-year notes priced at 99.539 to yield 5.561% with a spread of Treasuries plus 197 bps.

The $800 million of 6.375% 30-year notes priced at 99.864 to yield 6.386% with a spread of Treasuries plus 197 bps.

All of the tranches priced at the tight end of talk of 200 bps area.

Bookrunners were Lehman Brothers Inc., Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc.

The issue was well oversubscribed, a source close it said, with about $9 billion total books.

"Most of the demand was in the 30-years," he said. "There was the least demand in the five years, but it wasn't like there wasn't any interest there. It was fairly evenly split with all of them."

"It seemed like an attractive deal for those people who buy these kind of notes," he added.

Two other issues from Tuesday priced via Rule 144A.

E.On sells $3 billion

German energy company E.On priced $3 billion of notes in two tranches.

The $2 billion of 5.8% 10-year notes priced at 99.578 with a spread of Treasuries plus 225 bps.

The $1 billion of 6.65% 30-year notes priced at 99.572 to yield 6.683% with a spread of Treasuries plus 225 bps.

Banc of America Securities LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co. and J.P. Morgan Securities Inc. ran the books.

RBC brings $4 billion floaters

RBC priced $4 billion of extendible floating-rate notes in two tranches.

The $1.7 billion tranche priced at par with a coupon of three-month Libor plus 30 bps for the first year, increasing by 2 bps each year after until the year of maturity when it does not change.

The $2.3 billion tranche priced at par with a coupon of one-month Libor plus 40 bps for the first year, increasing by 2 bps each year after until the year of maturity when it does not change.

Both tranches have an initial maturity of May 15, 2009, with final maturity of May 15, 2014.

The notes are non-callable for five years.

Banc of America, Morgan Stanley & Co. Inc. and RBC Capital Markets are bookrunners.

Terms of an issue from Zions Bancorporation sold via online auction were also announced Tuesday in a press release from the company.

The company sold nearly $87 million of 4.65% one-year senior notes to yield 4.69%.

Steady issuance

There has been a steady stream of issuance in recent days, a source said.

"We're definitely seeing some consistency," he said. "I think the bank earnings announced today were moderately better than expected, and we could see more [issues] tomorrow because of that."

Some regional banks announced quarterly earnings Tuesday, with larger banks such as Citigroup and Merrill Lynch announcing toward the end of the week.

Wachovia's negative earning announcement Monday dented the market slightly, sources said, making the tone slightly negative.

XTO firms but Dell doesn't

A trader said that XTO Energy's new bonds were "not doing too badly" when they moved into the secondary realm. He saw the 5.50% notes due 2018 and the 6.375% bonds due 2038 each trading at bid levels around 194 bps over comparable Treasuries, and offered levels around 191 bps, versus the 197 bps off level at which that paper had priced earlier in the session.

He did not see any immediate trading in the new 4.625% notes due 2013, which also priced at a spread of 197 bps over.

Unlike numerous recent deals which have priced at almost ridiculously cheap levels in order to get done - meaning the bonds would sometimes tighten as much as 20 bps or 30 bps in the secondary to move back up to a more realistic price - the new Dell deal which priced Monday "came pretty tight," the trader said.

"The market proved that today," he said, noting the fact that the 5.65% notes due 2018 and the 6.50% notes due 2038, which each priced Monday at 217 bps over Treasuries, "were wrapped around 220 [bps] today."

WaMu takes its lumps

Back among the existing bonds, one of the biggest losers on the session was Washington Mutual's 8¼% notes due 2010, which gyrated wildly at lower levels against a backdrop of more bad news for the Seattle-based company.

According to a market source, those bonds - among the most actively traded high-grade issues on the day - had gone out Monday quoted at 826 bps over, but had ballooned out to a spread of nearly 1,100 bps, where they stayed for much of the day. Late in the session, the bonds narrowed back down to around 855 bps, about a 30 bps widening on the session, although it should be noted that the final trades of the day at the higher levels were small odd-lot transactions. On a dollar-price basis, the bonds were only about 5/8 lower on the day at 96.25, although before those last trades lifted the price, they had been down more than 4 points to the 92 level.

WaMu's chief financial officer, Thomas Casey, told investors, analysts and journalists on a conference call that the troubled thrift expects to charge off $12 billion to $19 billion of its $187 billion portfolio of single-family residential home loans in three to four years.

He also warned that the company's credit losses would likely peak this year.

The S&L - which set aside $3.51 billion for credit losses in the first quarter - will no longer publicly announce how much it expects to set aside for such losses.

WaMu said that it had lost $1.14 billion, or $1.40 a share, in the recent first quarter.

And it further announced the resignation of director Mary Pugh, chair of its finance committee, who had become something of a lightning rod for investor dissatisfaction with the bank's performance.

In the credit-default swaps market,, meantime, financial issues were seen generally better, with a trader seeing the banks' debt-protection costs narrow by 2 bps to 5 bps, and the brokers improve by 5 bps across the board as a sign of presumably renewed investor confidence in the sector's prospects.

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