Toyota prices floaters; mixed headlines have little impact; CIT better on home lending unit sale

By Andrea Heisinger and Paul Deckelman

Omaha, July 1 - Headlines were mixed Tuesday, but it was hard to gauge what impact they were having on the investment-grade market due to a lack of volume.

Toyota Motor Credit Corp. priced an issue of floating-rate notes, but most sources reported they didn't see any new issues for the day.

In the investment-grade secondary market Tuesday, advancing issues trailed decliners by a narrow ratio, while overall market activity, reflected in dollar volumes, rose by 13% from Monday's pace.

Spreads in general were again seen mostly little changed, as Treasury yields remained fairly steady; the yield on the benchmark 10-year issue, for instance, edged out by 1 basis point to 3.98%.

News that CIT Group Inc. agreed to sell its home lending business - which consists of a nearly $10 billion portfolio of subprime loans - caused a sharp rise in the troubled New York-based financial company's bonds and shares as well as a marked decline in its debt-protection costs.

Toyota brings floaters

Toyota priced $300 million of one-year floating-rate notes at par to yield Federal Funds plus 50 bps.

The agent was J.P. Morgan Securities Inc.

This deal made up most of the volume for the day.

ANZ watching conditions

An upcoming issue of five-year senior notes from Australian bank ANZ is going forward following the conclusion of its two day roadshow.

Timing of the issue is still not set following a conversation with the company Tuesday, a source close to the issue said.

Bookrunners for the offering are Goldman Sachs & Co., J.P. Morgan and Citigroup Global Markets Inc.

"Nothing's priced yet, we're still discussing it at this point," a source said. "No timing has been set, and the company's just keeping track of market conditions."

Given the rest of the week, in which syndicate desks look increasingly like ghost towns, it's likely the issue will not price until next week, he said.

A recently announced issue of non-cumulative preferred stock from Zions Bancorporation will be done Wednesday after the online auction closes.

The company extended the sale of the 9.5% shares sold for $25 apiece.

Negative headlines but few players

Headlines remained mostly negative Tuesday as unsavory conditions continued in the stock market, coupled with news of plummeting car sales.

"There wasn't a lot of volume today, so it's not representative of any significant moves in cash or CDS markets," a source said.

"The trading floors are pretty thinly staffed at this point, and I think we're done for the rest of the week."

Another source said he was hearing from his own desk as well as away that no issues were anticipated to come into the market until Monday at the earliest.

Most potential issuers will likely wait until Tuesday after spending a day after a long holiday weekend feeling out the market, a source said.

CIT strong

A major mover among investment-rated credits Tuesday was CIT Group, which announced that it was selling its home lending business - a $9.3 billion portfolio of subprime mortgages - to Lone Star Funds for $1.5 billion in cash; the private equity firm will also assume $4.4 billion of outstanding debt and other liabilities.

CIT also said that it will sell a $470 million portfolio of loans financing manufactured homes to Vanderbilt Mortgage and Finance, a unit of billionaire investor Warren Buffett's Berkshire Hathaway Inc., for about $300 million.

CIT - which has struggled with a downturn in the value of its residential loans - will take a pretax second-quarter charge of about $2.5 billion due to the sale. CIT, stung by the unanticipated downturn, is looking to get completely out of the mortgage business and other non-core areas like student loans and railcar leasing, in order to concentrate on its core commercial finance operations. CIT will realize $1.8 billion cash proceeds from the transactions.

The news that CIT was unloading a major underperforming asset caused its bonds and shares to shoot up; one of its most active issues was the CIT Group Funding Co. of Canada 5.20% notes due 2015, which have recently been trading like badly distressed junk bonds despite their nominal Baa1/A/A ratings from the major agencies. Those bonds closed Monday languishing below 54.5, a market source said - but had jumped to just below 73 by Tuesday afternoon on a number of big round-lot trades, several in the $5 million category. On a spread-versus Treasuries basis the notes were seen having tightened markedly to a level around 760 bps versus the five-year note from prior spreads nearly double that, above 1,300 bps over, as its yield narrowed to just under 11% from nearly 17% pre-news.

Parent CIT's 5.20% notes due 2010 showed somewhat less movement, going from a Monday close of about 80.5 to peak levels Tuesday around 87.5, before coming off those highs to settle in during the late afternoon above 83. On a spread basis, the bond tightened to around 890 bps during the morning, before widening back out to some 1,125 bps over - still well in from around the 1,290 mark at Monday's close.

With the 5.20% notes due 2015 considered something of an outlier, and the movements of other CIT paper more typical of the 2010 notes, a trader said that CIT was "a little better - but not screaming."

CIT's New York Stock Exchange-traded shares, on the other hand, were screaming, having zoomed $2.02, or 29.66%, to $8.83 on the news. Volume of 44 million shares was four times the norm.

A trader looking at the credit-default swaps market saw the cost of protecting holders of CIT debt having tightened about 20 bps on the news, to 720 bps bid, 750 bps offered.

"CIT had a big recovery," he said. "It seems like people like to pick up those assets."

Countrywide CDS jump

However, the big mover in the debt-protection market, he said, was Countrywide Financial Corp., whose CDS costs "came in big" now that the problem-plagued Calabasas, Calif.-based mortgage lenders' sale to Bank of America Corp. has officially been completed.

He saw Countrywide's CDS costs narrow by 55 bps to 155 bps bid, 165 bps offered.

Countrywide and CIT Group aside, the trader said that in general, major-bank CDS costs were about 5 bps to 15 bps wider, while major brokerage firm CDS costs were out by 5 bps to 10 bps.

Back in the cash-bond market, the nominally investment-grade rated Countrywide's 6¼% notes due 2016 were up 4 points at 90 bid, while a market source at another desk saw its 4% notes due 2011 up more than 3 points to the 94 level. On a spread basis, a source saw the company's 5.80% notes due 2012 having tightened more than 60 bps on the session to 365 bps.

Some investors had feared that B of A might try to either back out of the deal altogether or at least re-negotiate its terms, in view of Countrywide's big losses and other mortgage-related problems, but that never came to pass.

Elsewhere, Citigroup's bonds were seen mixed; a market source quoted the banking giant's 6 1/8% notes due 2017 as having widened out some two dozen basis points to about the 280 bps mark, while its 6% notes due 2012 came in around the same amount to 270 bps.

Among some of the recently priced paper which was actively changing hands, Thomson Reuters Corp.'s 6.50% notes due 2018 were quoted at 244 bps over, little changed from the 243 bps level at which the financial information company's $1 billion of bonds had priced on June 17 as part of a two-tranche deal.

International Paper Co.'s 7.95% notes due 2018 were seen at 412 bps over, having widened out from the 395 bps over level at which the company priced $1.7 billion of the bonds on May 28 as part of a three-tranche deal.

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