AT&T, Hess, General Mills, ConocoPhillips, Goldman sell bonds; secondary watches Goldman deal

By Andrea Heisinger and Paul Deckelman

New York, Jan. 29 - The investment-grade bond market sprang back to life Thursday with deals pricing from Hess Corp., General Mills, Inc., ConocoPhillips, AT&T Inc. and Goldman Sachs Group Inc.

The last in that list was a rare deal from a financial name that wasn't backed by the Federal Deposit Insurance Corp.

In the secondary sphere on Thursday, a market source said the widely followed CDX Series 11 North American high-grade index was wider by 5 basis points on the day to a mid bid-asked spread level of 197 bps, versus 192 bps on Wednesday.

Advancing issues fell behind decliners, by a better than eight-to-seven ratio. Overall market activity, reflected in dollar volumes, fell about 3% from the levels seen on Wednesday.

Spreads in general were seen tighter, in line with substantially higher Treasury yields; for instance, the yield on the benchmark 10-year issue rose 18 bps to 2.85%.

Trading in newly priced issues like General Mills, ConocoPhillips and Hess Corp. dominated the proceedings on the industrial side of the market, while the financials were fixated on the aftermarket behavior of the new Goldman Sachs issue, which was being watched as a barometer of how a non-FDIC-backed financial name would do in the current environment.

General Mills sells $1.15 billion

Cereal and packaged food company General Mills priced $1.15 billion of 5.65% 10-year notes at 99.914 to yield 5.661% with a spread of Treasuries plus 287.5 bps.

This was at the tight end of price talk, a source said, which was 287.5 to 300 bps.

The deal also carried a respectable new issue concession of 10 to 20 bps based on the company's comparable outstanding paper, the source said.

Deutsche Bank Securities Inc., J.P. Morgan Securities Inc. and Morgan Stanley & Co. Inc. were bookrunners.

A high-yield mutual fund manager who was a buyer on the deal said "Even though the spreads and absolute yields have come down from last fall I think they still represent a pretty good risk-reward value."

"I think spreads have to narrow," he said.

The deal was nearly six times oversubscribed with books of $6 billion.

"That's the way they've been," he said. "All of these investment-grade deals have been five- or six-times oversubscribed."

There was not a lot of junk play on this deal because of the size and coupon amount, as well as the reasonable levels on the rest of the terms, the fund manager said.

Goldman prices non-FDIC bonds

In what has become a rare occasion in the last two months, Goldman Sachs Group priced $2 billion of 7.5% 10-year notes Thursday that were not backed by the FDIC Temporary Liquidity Guarantee Program.

The notes priced at 98.078 to yield 7.779% with a spread of Treasuries plus 500 bps. This was in line with talk of 500 bps, a source said.

Compared to the 10-year bonds from General Mills, Goldman paid more heavily to get the deal done.

A source said the issue carried an 80 to 90 bps new issue price.

This is despite Goldman having slightly better ratings at A1/A/A+ compared to General Mills' Baa1/BBB+/BBB+.

Goldman Sachs & Co. ran the books.

A source outside the deal said, "A lot of people were surprised at that," in reference to the bank pricing a non-FDIC bond sale.

"I'm sure they had their reasons and needed to get some paper done."

Conoco sells $6 billion

ConocoPhillips priced $6 billion of notes in three tranches of five, 10 and 30-year notes.

The $1.5 billion of 4.75% five-year notes priced at Treasuries plus 295 bps, with the $2.25 billion of 5.75% 10-year notes also pricing at 295 bps over Treasuries.

The $2.25 billion of 6.5% 30-year notes priced flat to the other tranches at Treasuries plus 295 bps.

The three tranches varied in how they did compared to price talk.

A source said the five-year notes were talked at Treasuries plus 270 bps, which put them 25 bps wider than talk.

The 10 and 30-year notes fared better, with each coming in 5 bps tighter than talk of 300 bps.

Active bookrunners were Banc of America Securities LLC, Barclays Capital Inc. and Credit Suisse Securities.

Hess offers two tranches

Energy company Hess priced $1.25 billion in two tranches.

The $250 million of 7% five-year notes priced at 99.724 to yield 7.065% with a spread of Treasuries plus 530 bps.

A larger $1 billion tranche of 8.125% 10-year notes priced at 99.677 to yield 8.172% with a spread of Treasuries plus 540 bps.

Goldman Sachs & Co., J.P. Morgan Securities and RBS Greenwich Capital ran the books.

AT&T does late bond sale

AT&T priced $5.5 billion notes in three tranches late Thursday.

A source who worked on the deal said it "literally lasted all day."

Full terms were not available at press time because of the late pricing.

The deal was $1 billion of five-year notes, $2.25 billion of 10-year notes and $2.25 billion of 30-year notes. They all priced at 300 bps over Treasuries.

A source close to the deal said there was never official price talk, and it was unofficially talked in the low 300s.

"We never stated a curve," he said. "I think some people were guessing because there were investors who thought it was supposed to price yesterday."

A second source said price talk was at 300 to 337.5 bps for each tranche. He also said it carried about a 50 bps new issue concession.

Either way, the deal did well and priced at the tight end of talk.

The issue carried "a huge book," a source said, with orders of $14 billion.

He also said it was "quite a process" to price and coordinate the deal because there were different bookrunner combinations for each tranche.

Banc of America Securities, Goldman Sachs and J.P. Morgan Securities were books for the five-year notes.

Banc of America, Citigroup and J.P. Morgan ran the 10-year notes, and Citigroup Goldman Sachs and J.P. Morgan were on the 30-year tranche.

Vulcan gives deal terms

Vulcan Materials Co. gave terms Thursday for a $400 million two-part deal priced Jan. 23 under Rule 144A. They were given in an 8-K Securities and Exchange Commission filing.

The $150 million of 10.125% notes due 2015 priced at 99.66. A second tranche of $250 million in 10.375% notes due 2018 priced at 99.268.

Goldman Sachs ran the books.

High-grade bond sales stay strong

Continued headlines on the state of Wall Street and investments in general are not slowing down the action in the investment-grade bond market, a buy-side source said.

"For all of the talk about the lack of liquidity and companies' inability to obtain financing, good quality investment-grade companies that aren't in cyclical businesses have no difficulty raising money, whatsoever," he said.

This view seems to be supported by the steady stream of new deals coming into the investment-grade market since November, in the face of dire headlines and a deepening economic crisis.

Cash continues to flow into the market, the buy-side source said.

"I haven't seen flows into high grade," he said, "but you can be sure that demand for better-quality income paper is very high."

Day sees nearly $16 billion

Thanks to deals that were all more than $1 billion, Thursday saw about $15.9 billion in issuance after a Wednesday that was at a standstill.

Earnings and a Fed meeting led to a bone-dry day, followed by a flood.

"I think we kind of knew this was coming," a source said of the day's high total.

An issuance blackout because of earnings left many companies out in the cold, but with ConocoPhillips and others recently announcing fourth-quarter results, they were again free to sell bonds.

It was unclear whether Friday will bring another rush of issuance, but a source outside the high-grade market said energy provider Dominion is planning a $1.6 billion issue of bonds.

No further information was available at press time.

The company announced its 2008 earnings Thursday, showing a drop from 2007.

New issues tighten up

In the secondary market, a trader said that "all high-quality, non-financial bonds were better bid" - particularly the newly priced, or just recently priced issues.

He saw General Mills' new 5.65% benchmark notes due 2019 firm smartly to a spread against comparable Treasuries of 245 bps bid, 235 bps offered - well in from the 287.5 bps level at which the foods giant priced its $1.15 billion of new notes.

Trading was also hot in the two new energy industry deals that priced on Thursday.

Hess Corp.'s $250 million of 7% notes due 2014, which priced at 530 bps over, were seen having tightened to 485 bps bid, 480 bps offered, while the company's $1 billion of 8.125% notes due 2019 had firmed to 488 bps bid, 485 bps offered, from 540 bps over at the pricing.

The trader said that all three tranches of ConocoPhillips paper - the $1.5 billion of 4.75% notes due 2014, the $2.25 billion of 5.75% notes due 2019, and the $2.25 billion of 6.50% bonds due 2039 - were seen having firmed to a bid level of 280 bps, with no offering sides seen, versus the 295 bps over level at which the bonds had priced.

The new AT&T three-part mega-deal was seen having come to market too late in the session for any meaningful aftermarket action. A market source said that some secondary participants were a little confused and miffed by the issue, believing that it was going to price on Wednesday but then having to wait another day.

He said they also were surprised to see all three Telephone tranches pricing at the same spread, with the wide divergence between them then seen in the coupon.

Tuesday bonds keep climbing

Among issues which priced on Tuesday, Entergy Texas Inc.'s 7.125% notes due 2019 were seen trading at a spread of 465 bps bid, 450 bps offered, somewhat wider than the 462 bps bid, 457 bps offered at which they had traded Wednesday, but still in from the 470 bps bid level at which the Beaumont, Tex.-based electric utility company had priced its $500 million of new bonds.

A trader saw Washington Post Co.'s new $400 million of 7.25% notes due 2019 having firmed smartly to 420 bps bid, 410 bps offered. That was in from the 435 bps level at which the bonds traded on Wednesday, and was even more of a contrast to the 475 bps at which the Washington-based media company priced those bonds on Tuesday.

And Delhaize Group SA/NV's new $300 million of 5.875% notes due 2014 firmed to 390 bps bid, 377 bps offered from 415 bps bid, 395 bps over on Wednesday; the Brussels, Belgium-based food retailer's bonds had priced Tuesday at 437.5 bps over.

New Goldmans are golden

Over in the financial sector, all eyes were on Goldman Sachs' $2 billion of new 7.50% notes due 2019, which priced in the regular market rather than off agency desks as an FDIC-guaranteed issue.

A trader saw those bonds tighten to a 473-472 bps kind of market, from the 500 bps over level at which the bonds had priced earlier in the session.

"It tightened pretty quickly down to 485/480, and then it grinded down to 475 bps and kind of lost a little momentum. "

He estimated a closing generic quote for the new issue of 475 bps bid, 470 bps offered.

He agreed that it is "absolutely" unusual to see a financial company like Goldman coming a non-FDIC deal, when the FDIC issues would likely be trading at 100 bps over or less, "but they wanted to try" to see what the market would bear.

He noted that this was the first such deal, other than General Electric Capital Corp.'s $4 billion of 6.875% notes due 2039, which priced at 400 bps over Treasuries on Jan. 6, and which then proceeded to tighten up solidly in the secondary market.

Apart from the interest in the Goldman bonds, he said that existing bank paper "was definitely a little squishy". The Goldman deal, he said, "was better - but everything else widened out."

A market source at another desk saw existing Goldman paper wide, including the FDIC-backed 1.625% notes due 2011, which eased to 73 bid from around 60 bid on Wednesday, and the company's non-FDIC 6.15% notes due 2018, which moved out to about 455 bps over.

Financials ease up

Among other existing financial issues seen widening notably were Citigroup's 5% notes due 2014, which ballooned out by an estimated 100 bps to the 750 bps level, a market source said, and Hartford Financial Services Group Inc.'s 5.25% notes due 2011, out 60 bps to around the 720 bps level.

Financials' debt-protection costs rise

In the credit-default swaps market, a trader said the cost of protecting holders of big-bank bonds against a possible default widened by 10 bps to 15 bps, reversing Wednesday's trend.

He saw debt-protection costs for major-brokerage paper 10 bps to 25 bps wider, also a big change from the day before.

Paul Harris contributed to this report

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