New Roche bonds trade solidly higher; Snap-on prices two-part deal; CBS gains on debt-payment pledge

By Andrea Heisinger and Paul Deckelman

New York, Feb. 19 - Roche's $16 billion of new bonds hit the investment-grade secondary market Thursday - and were seen by traders and other market participants to have traded up sharply, as everyone seemed to want a piece of the historic deal , believed to be the largest-ever dollar-denominated corporate bond deal.

While the giant six-part mega-deal was easily the story of the day, as well as the week, on the primaryside, new-dealers were not yet finished Thursday as Snap-on Inc. came to market with a $300 million two-part deal.

Terms meantime surfaced on J.P. Morgan Chase & Co.'s $10 billion FDIC-backed four-part offering, which had actually priced late Wednesday.

In the secondary sphere on Thursday, apart from the spirited trading in the new Roche bonds, a market source said the widely followed CDX Series 11 North American high-grade index tightened to a mid bid-asked spread level of 210 basis points, versus 212 bps on Wednesday.

Advancing issues remained behind decliners, by a not-quite three-to-two ratio.

Overall market activity, reflected in dollar volumes, rose by 4% from the levels seen on Wednesday.

Spreads in general continued to tighten Thursday as Treasury yields kept rising; for instance, the yield on the benchmark 10-year issue pushed up by 11 bps to 2.86%.

CBS Corp.'s short-duration bonds firmed smartly after the New York-based broadcaster said it expects to be able to repay its debt coming due over the next three years.

Roche bonds a welcome tonic for market

Clearly the big story of the day was the active upside dealings in Roche's new bonds, particularly the four fixed-coupon tranches.

Even in the morning, word began making the rounds of the market that the Swiss drug giant's new bonds were anywhere from 35 bps to 60 bps tighter than the spreads over comparable Treasury issues at which they had priced on Wednesday.

Having shot up from the get-go, those bonds were seen holding those gains for the rest of the day, although a market participant noted that after that initial jump, the bonds plateaued at those higher levels, rather than continuing upward.

A trader saw the new 4.50% notes due 2012 having firmed by mid-afternoon to 275 bps bid, 260 bps offered. That was well in from the 335 bps at which the $2.5 billion of bonds had priced on Wednesday. He saw Roche's $2.75 billion of new 5% notes due 2014, which had also priced at 335 bps over, at Thursday levels of 290 bps bid, 285 bps offered.

The trader saw Roche's 6% notes due 2019 at 312 bps bid, 307 bps offered; the company had priced $4.5 billion of the bonds on Wednesday at 345 bps over.

And its long bond, the $2.5 billion of 7% bonds due 2039, were also better; they had priced at 365 bps over, but had come in to 320 bps bid, 315 bps offered.

Another source reported hearing the three-year bonds quoted as tight as 260 bps, the five-years as tight as 280 bps and the 10-year at 315 bps.

Snap-on offers two tranches

In primary activity, tool maker Snap-on was about the only issuer Thursday as syndicate desks continued to mop up from a busy Wednesday.

It was also announced in a Securities and Exchange Commission filing that DCP Midstream Partners LP will price bonds under Rule 144A and Regulation S.

Although there was action in the primary, all eyes were on how the six tranches of the Roche deal performed in the secondary, a market source said.

Snap-on sold $300 million of notes in two tranches Thursday in one of the only new deals to price.

Some syndicate desks were "still drying out" from the rest of the hectic week, a source said.

The $100 million of 5.85% five-year notes priced at 99.912 to yield 5.87% with a spread of Treasuries plus 400 basis points.

The $200 million of 6.7% 10-year notes priced at 99.832 to yield 6.723% with a spread of Treasuries plus 387.5 bps.

Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. were active bookrunners.

JPMorgan sells FDIC notes

JPMorgan Chase & Co. sold $10 billion of notes in four tranches backed by the Federal Deposit Insurance Corp. Temporary Liquidity Guarantee Program.

The deal priced late Wednesday, with terms given Thursday.

A $1 billion tranche of two-year floating-rate notes priced at par to yield three-month Libor plus 8 bps.

A second tranche of floaters was $4 billion of three-year notes priced at par to yield three-month Libor plus 23 bps.

A $2 billion tranche of 1.65% two-year notes priced at 99.961to yield 1.67% with a spread of Treasuries plus 71.4 bps.

The final tranche was $3 billion of 2.2% three-year notes sold at 99.938 to yield 2.22% with a spread of Treasuries plus 89 bps.

J.P. Morgan was bookrunner.

The financial services company plans to use the proceeds for a variety of purposes, according to a prospectus, including repaying debt, investment and credit for subsidiaries, possible acquisitions or expansion and redemption of securities.

Roche gives terms for $16 billion deal

Swiss drug maker Roche gave terms for its $16 billion mega-deal in six tranches that priced late Wednesday under Rule 144A.

The deal started on Tuesday at $8 billion in four tranches and grew overnight due to demand to include a mix of floating- and fixed-rate notes.

A $3 billion tranche of one-year floating-rate notes priced at par to yield three-month Libor plus 100 bps.

A second tranche of floaters was $750 million of two-year notes priced at par to yield three-month Libor plus 200 bps.

The remaining four tranches were fixed-rate notes.

A $2.5 billion of 4.5% three-year notes sold at 99.470 to yield 4.69% with a spread of Treasuries plus 335 bps.

The $2.75 billion of 5% five-year notes priced at 99.274 to yield 5.166% with a spread of Treasuries plus 335 bps.

A $4.5 billion tranche of 6% 10-year notes priced at 99.428 to yield 6.213% with a spread of Treasuries plus 345 bps.

The final tranche was $2.5 billion of 7% 30-year notes priced at 97.278 to yield 7.223% with a spread of Treasuries plus 365 bps.

All of the tranches priced in line with price talk, which was 325 to 350 bps for the three- and five-year tranches, 337.5 to 362.5 bps for the 10-year notes and 362.5 to 387.5 bps for the 30-year notes.

Bookrunners were Banc of America Securities LLC, Citigroup Global Markets Inc. and J.P. Morgan Securities Inc.

Although it may not be the largest corporate deal ever done, a market source said Wednesday it was "the largest in recent memory." It was being compared to the previous benchmark deal from GlaxoSmithKline in May, 2008, that totaled $9 billion.

Another source said Thursday that the deal carried a fairly high new issue concession, which the company paid in order to get it done.

DCP Midstream plans sale

DCP Midstream Partners announced it is planning on selling senior unsecured notes under Rule 144A and Regulation S, according to a form 8-K SEC filing.

The issue will likely follow the company's quarterly and 2008 earnings announcement Feb. 25.

Market pace slows

As the stock market took another tumble Thursday, the bond market also slowed. One didn't necessarily have to do with the other, though, a market source said.

"I think we just used up the calendar," he said. "We needed a breather after yesterday."

He was referring to the giant Roche deal, which took much of two days to get done.

"I think people just wanted to see how they did in the secondary and go from there," he said, referring syndicate desks as well as other companies.

"It was pretty exhausting and took a lot to get done."

It's unlikely much more will come to the market this week, he said, based on an uncertain market tone and fears about the health of banks.

"I think a lot [of companies] will wait for next week right now."

New Snap-on issue trades around

Back in the secondary realm, apart from the Roche-fest, there was some trading seen in some of the other new or recently priced issues, including Thursday's only pricing, for Snap-on. A trader saw its $100 million of 5.85% notes due 2014 at a bid level of 390 bps, though with no offered level seen. The bonds had priced earlier in the session at a 400 bps spread.

The other half of that deal, the $300 million of 6.70% notes due 2019, was quoted at 380 bps bid, in a little from the 387.5 bps spread seen at the pricing, but again, with no offered levels seen.

Canadian National chugs higher, Goodrich, not

Among the deals which priced Wednesday, again other than Roche, Canadian National Railway Co.'s upsized $550 million of 5.55% notes due 2019 were quoted at a bid level of 275 bps, although no offered levels were seen. The transcontinental railroad operator's bonds had priced on Wednesday at 295 bps over.

Goodrich Corp.'s new 6.125% notes due 2019, which had also priced on Wednesday, at 350 bps over, were seen little changed on Thursday; the upsized $300 million issue was heard offered at 350 bps, but no bid price levels were seen.

Du Pont continues to disappoint

Among other recently priced deals, E.I. Du Pont de Nemours Co.'s bonds continued to trade well outside the levels at which they had priced on Tuesday.

A trader saw the Wilmington, Del.-based chemical giant's 4.75% notes due 2015 at 335 bps bid; the $400 million of the bonds had priced at 312.5 bps.

Meanwhile, its $500 million of 5.75% notes due 2019 were trading at 334 bps bid, 328 bps offered on Thursday, still far wide of the 312.5 bps level at which those bonds had priced.

CBS catches investors' eye

Among the established issues, CBS Corp.'s shortest-dated paper was seen solidly tighter after its executives said on a conference call that the TV, radio and outdoor advertising company expects to be able to repay about $3 billion of debt coming due in the next three years.

A market source saw the company's 7.70% notes due 2010 having firmed to around 735 bps over, around a 50-bps pickup over Wednesday's closing levels; at one point, those bonds got as tight as around 610 bps, translating to a dollar price of nearly 101, up almost 2½ points, before coming partially down from that peak level.

CBS' 6.625% notes due 2011, which had been quoted at around 969 bps over on Wednesday, tightened markedly to under 700 bps, translating to a more than 5-point dollar price gain to just under 97.

The CBS issues were among the most busily traded bonds of the session, with over $75 million of the 7.70s and over $50 million of the 6.625s having changed hands by early afternoon, another market source said.

The CBS bonds tightened up - although the company's New York Stock Exchange-traded shares moved lower on the news that CBS is slashing its dividend to conserve cash - as investors digested statements made on the conference call Wednesday following the release of fourth-quarter results, which saw earnings fall 52% but beat Wall Street expectations.

During the call, company chief financial officer Fred Reynolds said that with the "unstable and uncertain" status of the credit markets, CBS will use funds on hand to pay the roughly $3 billion of debt coming due between next year and 2012, including the $1.15 billion of 7.70% notes and the $995 million of outstanding 6.625s. CBS also has about $270 million 8.625% notes and $600 million of 5.625% notes both coming due in 2012.

In order to be able to pay down the debt, there will be a round of belt-tightening at Black Rock, with the dividend payable on April 1 to shareholders of record as of March 11 being chopped down 81% to a nickel per share from 27 cents previously, and capital expenditures being sliced to under $350 million annually.

Financial CDS costs keep rising

A trader who follows the credit-defaults swaps market meantime said that the cost of protecting holders of big-bank paper had risen by 15 bps to 20 bps; CDS costs for brokerage bonds were anywhere from unchanged to 15 bps wider.

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