KfW prices $3 billion as planned issuance stays on day-to-day basis; ANZ issue still in the works

By Andrea Heisinger and Paul Deckelman

Omaha, July 8 - Issuers are continuing to take things one day at a time as rocky conditions again made them cautious Tuesday with KfW one of the few to brave the market.

"Things are just rough out there right now," a source said, echoing what others have been saying for the past two weeks.

The amount of issuance is much what things were like during the sub-prime mortgage crisis, one source said.

In the investment-grade secondary market Tuesday, advancing issues led decliners by a five-to-four ratio, while overall market activity, reflected in dollar volumes, rose 46% from Monday's pace.

Spreads in general were wider, in line with lower Treasury yields; for instance, the yield on the benchmark 10-year issue narrowed by 2 basis points to 3.88%.

KfW at 83.5 bps

KfW priced $3 billion of 4% five-year global notes at 99.897 with a spread of Treasuries plus 83.5 bps.

Bookrunners were Goldman Sachs & Co., J.P. Morgan Securities Inc. and Morgan Stanley & Co., Inc.

Terms were given for an issue priced Monday from Toyota Motor Credit Corp.

The company priced $250 million of one-year medium-term floating-rate notes at par to yield Federal Funds plus 50 bps.

The size was increased from an original $100 million.

Mizuho Securities USA Inc. and Loop Capital Markets were agents.

ANZ still waiting

Australia's ANZ is still waiting for market conditions to improve so it can price an issue of five-year senior notes that has been on the table since its roadshow ended at the end of June.

A source close to the deal said that the company is monitoring the market and will price it when things have improved.

"Nothing yet, although it could come later this week," he said.

Goldman Sachs & Co., J.P. Morgan Securities Inc. and Citigroup Global Markets are bookrunners.

Market conditions were bad Monday and remained that way Tuesday morning, a source said.

"Things kind of rallied this afternoon, but not enough to matter," he said.

There is a modest backlog that has built up since market conditions deteriorated, the source said.

"Hopefully we'll see something tomorrow," he said.

New Idaho Power bonds tighten a little

A trader said that there was "not a whole lot" going on in Tuesday's dealings. About the only feature he saw was a slight tightening of Idaho Power's new 6.025% first mortgage bonds due 2018.

The utility had priced $120 million of the securities on Monday at a spread over comparable Treasury issues of 215 bps. In Tuesday afternoon dealings, he saw the bonds having come in a little to 213 bps bid, 205 bps offered.

Anheuser-Busch little moved

The trader saw Anheuser-Busch Cos. Inc.'s longer-dated bonds due trading "in the high 200s," with the 6.80% bonds due 2031 offered around 270 bps, while the St. Louis-based brewing giant's 10-year paper was hanging in around 220 bps, both little changed on the session.

At another desk, a market source saw Bud's 6.45% bonds due 2037 unchanged at 235 bps over.

Although the bonds haven't been terribly active of late, Anheuser-Busch's lawyers have been, marching into federal court in St. Louis to challenge the efforts of the even bigger international beer-maker InBev NV to buy Anheuser - brewer of the iconic Budweiser and other well-known brands - for $46 billion, or $65 per share, which the U.S. company terms an "inadequate" offer.

Besides stressing the inadequacy of the offer, the Anheuser lawyers termed InBev's gambit "illegal," claiming that the company had made "false and misleading statements" about the $1 billion in annual savings it has claimed the acquisition would generate, about its prospective funding for the deal, and about its operations in Cuba; the attorneys contend that U.S. law would forbid a takeover of Anheuser by InBev on the latter grounds, since U.S. law bars businesses in Cuba from being managed in the U.S. InBev's attorneys reject the assertions made by their Anheuser counterparts.

In a research note Tuesday, analyst B. Craig Hutson of the Gimme Credit advisory service opined that "we are relatively confident that InBev's financing commitments come with conditions, but we also believe the combined company could comfortably support the new debt load. Further InBev is reportedly preparing to issue equity to offset some of the debt and to reduce leverage."

Hutson essentially dismissed Anheuser's claims that InBev's Cuban operations would be a disqualifying factor, predicting that "we would expect InBev to sell this operation if it were a hurdle to getting a deal done with BUD, particularly since it accounts for less than 0.5% of its beer sales."

In rating Anheuser's overall prospects as "deteriorating," he further said that although it enjoys a "dominant" share of the U.S. beer market, domestic beer industry growth margins have been "sluggish," while the company's "high" level of share repurchases have sopped up a good deal of its normally strong cash flows. At the same time, he warned, "credit measures have weakened."

CDS costs mixed; Freddie, Fannie improve

In the credit-default swaps market, a trader said that the cost of protecting big-bank debt was anywhere from 5 bps wider to 5 bps tighter, while CDS costs for the major brokerage names were unchanged to "maybe 2 [bps] tighter."

Also in the CDS market, debt-protection costs for Fannie Mae and Freddie Mac's subordinated bonds were seen having tightened about 8 to 10 bps on the session to a mid-price of about 192 bps after the top federal regulator overseeing the two mortgage finance government-sponsored enterprise corporations said that future accounting rules would likely not lead regulators to demand that they hold more capital.

"From our standpoint, an accounting change should not drive capital," declared James Lockhart, the director of the Office of Federal Housing Enterprise Oversight.

Analyst speculation on Monday that Fannie and Freddie might be forced to issue billions of dollars of new stock to raise fresh capital - pushed by potentially tougher accounting treatment of their securitized assets - beat down the shares of both GSEs on Monday and caused their debt-protection costs to widen as well.

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