Alcoa, SABMiller, Northern Natural Gas price; investors, issuers rebound against market conditions

By Andrea Heisinger and Paul Deckelman

Omaha, July 10 - Market conditions retained some stability Thursday, allowing for issues from Alcoa Inc., SABMiller plc, Northern Natural Gas and Lloyds TSB Group.

After a window of issuance opened Wednesday, market conditions worsened and sources wondered if conditions would hold.

"I think it was a little bit surprising to see more, and at the size they did, too," a market source said.

In the investment-grade secondary market Thursday, advancing issues led decliners by a not-quite seven-to-six ratio, while overall market activity, reflected in dollar volumes, rose some 21% from Wednesday's pace.

Spreads in general showed no definite trend, in line with Treasury yields; for instance, the yield on the benchmark 10-year issue tightened by 1 basis point to 3.80%, while the yield on the 3-year notes widened out by 4 bps to 2.34%.

Alcoa brings $1.5 billion

Aluminum company Alcoa priced $1.5 billion of notes in two tranches.

The $750 million of 6% five-year notes priced at 99.685 to yield 6.074% with a spread of Treasuries plus 300 bps.

The $750 million of 6.75% 10-year notes priced at 99.684 to yield 6.794% with a spread of Treasuries plus 300 bps.

Banc of America Securities LLC, Barclays Capital Inc., Citigroup Global Markets Inc. and Lehman Brothers Inc. were bookrunners.

SABMiller at tight end

The $1.25 billion, two-tranche issue from SABMiller went well, a source close to the deal said.

The brewer and bottler priced $550 million of 5.7% notes due 2014 at 99.824 with a spread of Treasuries plus 265 bps.

This was at the tight end of price talk of 265 to 270 bps.

The second tranche was $700 million of 6.5% 10-year notes priced at 99.964 with a spread of Treasuries plus 270 bps.

This was also at the tight end of price talk of 270 to 275 bps.

Active bookrunners were Banc of America Securities LLC, Barclays Capital Inc. and J.P. Morgan Securities Inc. Passive bookrunners were BNP Paribas Securities and RBS Greenwich Capital.

Northern Natural sells $200 million

Northern Natural Gas priced $200 million of 5.75% 10-year notes at 99.977 to yield 5.753% with a spread of Treasuries plus 193 bps.

The issue priced under Rule 144A.

BNP, J.P. Morgan and Lehman Brothers ran the books.

Lloyds offers floaters

British bank Lloyds TSB Group also priced an issue of $3.25 billion in extendible floating-rate notes with final maturity of 2013. They have an initial coupon of three-month Libor plus 30 bps.

The issue priced under Rule 144A with Morgan Stanley & Co., Inc. and Goldman Sachs & Co. as bookrunners.

Magellan locks in rates

An issue priced Wednesday from Magellan Midstream Partners LP went well from the company's view point.

The energy company sold $250 million of 6.4% 10-year notes at Treasuries plus 255 bps.

"We were pleased with the recent bond deal," said the company's director of investor relations, Paula Farrell, in an e-mail.

The all-in pricing was attractive to the company, and in line with their expectations, she said.

"We have been watching the markets for a while now, wanting to lock up longer-term debt to secure financial flexibility for Magellan. We chose a 10-year offering based on the attractiveness of the 10-year Treasury coupled with the ability to stagger our debt maturities."

Bookrunners for the issue were Wachovia Capital Markets and Banc of America.

Friday seen quiet

It's likely issuance is done for the week, despite a run in the last couple of days.

One source said they were a little surprised at the larger size of some of Thursday's issues in light of recent market conditions.

"I think people are realizing you can't wait for a perfect day," he said. "There's no guarantee things are going to get any better."

Big deals surprise

Negative headlines from mortgage lenders Freddie Mac and Fannie Mae also didn't scare away investors or issuers.

"Even though you had all that stuff out there from Fannie and Freddie, and Lehman being down, if you have a trade that works you have to go with it," a source said.

"It was still a little surprising to see these larger deals, to be honest."

Some financials ease, others gain

With no shortage of news in the financial realm - including Wachovia Corp.'s selection of a new chief executive officer and its acknowledgement that it will show a big quarterly loss, as well, and renewed investor concerns about Fannie Mae and Freddie Mac - a trader said that the financials sector was mixed.

"Things felt a little bit weaker," he said, but "Bank of America paper seemed to hold in. J.P. Morgan paper seemed to hold in."

He saw Lehman Brothers Holdings Inc.'s bonds widening out by about 25 bps on renewed fears about the Number-Four brokerage's credit standing, especially in the wake of it having reported an unexpected $3 billion second-quarter loss last month. He also saw Merrill Lynch's bonds weaker. Everything else, he said, was essentially "a non-event."

"Bids did generically come in on paper," he said, but while "some stuff is definitely trading," it was tough to say how much. He characterized the market as "sloppy" and "skittish."

Wachovia loss forecast weighs

He also said that Wachovia "didn't do anything much one way or the other."

However, a market source saw the Charlotte, N.C.-based Number-Four U.S. banking company's 5.50% notes due 2013 as having widened out 20 bps to 340 bps, as investors apparently chose to focus more on the company's estimate that it lost between $2.6 billion and $2.8 billion during the second quarter, rather than on the news that respected former Treasury official Robert Steel will shortly come aboard as CEO. Steel will replace Ken Thompson who was abruptly ousted by the bank's board in June, amid projections of continued heavy losses.

Lehman bonds seen lower

A market source saw Lehman's 5.50% notes due 2016 also out 20 bps to about the 330 bps level. At another desk, Lehman's 4.50% notes due 2010 were seen little changed, although on busy dealings that left the bonds at about 95.5 on a dollar-price basis. Lehman's 5.625 notes due 2013 were seen even lower, down 1½ points at just under 95. Another source quoted those bonds as having fallen to 94, at a spread of 417 bps over, while the 4.50s closed just above 96, out by 413 bps.

However, Lehman got a vote of confidence - more or less - from an influential voice in the market, as Bill Gross, chief investment officer at bond fund manager Pimco, said in an interview that the giant asset-manager has not reduced its Lehman Holdings stake, contrary to some rumors that roiled the market earlier Thursday. Gross cited the financing that the Federal Reserve is offering to investment banks to help keep them solvent.

In the credit-default swaps market, a trader said that Lehman's debt-protection cost had widened out by 50 bps on the day to 285 bps. He also saw Wachovia's CDS cost out 10 bps at 220 bps bid, 230 bps offered.

Otherwise, he said, bank CDS costs were 3 bps to 10 bps wider on the day, while brokerage dept-protection costs were 15 bps to 20 bps wider.

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