Nordic Investment Bank prices $1 billion; syndicates see need propelling issuance; spreads wider, financials active

By Andrea Heisinger and Paul Deckelman

New York, Nov. 20 - Nordic Investment Bank was the lone new issuer Thursday as the primary market dealt with more negative economic news.

The condition of the stock market didn't help matters, a source said.

"We're kind of back where we were a couple of weeks ago," he said.

In the investment-grade secondary market Thursday, advancing issues led decliners by a relatively slim margin. Overall market activity, reflected in dollar volumes, was down 20% from Wednesday's pace.

As had been the case on Wednesday, spreads in general were again seen considerably wider, in line with sharply lower Treasury yields; for instance, the yield on the benchmark 10-year issue fell by 31 basis points to 3.01%.

The financials sector led equities sharply lower on continued investor angst over the health of the sector and the markets in general, with Citigroup's shares getting clobbered big-time despite the promise of a major shareholder to up his stake, although marginally. Saudi prince Alwaleed bin Talal also gave a vote of confidence to CEO Vikram Pandit. But while Citi's shares were tumbling, its bonds weren't really doing much, a trader said, although other participants did see them wider. Other financials like Goldman Sachs and Bank of America were more active, though not overwhelmingly so, and were mostly wider.

NIB prices $1 billion

Nordic Investment Bank priced a $1 billion issue of global notes early in the day.

The 2.375% three-year notes priced at 99.766.

Citigroup Global Markets Inc., HSBC Securities and J.P. Morgan Securities Inc. ran the books.

Issuers await calm markets

Issuers again stayed away from the primary market Thursday as conditions remained volatile. Oil prices were down again, and unemployment data from the Labor Department showed the most first-time claims filed last week since 1992.

The number of backlogged deals has continued to dwindle this week as several were priced Monday and Tuesday.

This left a handful in the possible issuers pile, but nothing that urgently needs to come, a source said.

"I think a lot [of companies] can maybe wait a week or two, as long as it's before next year," he said.

Companies have continued to issue as market conditions have worsened, although with less of a backlog on hand that may not be the case after the end of the year, a source said.

"It might be slow after this backlog is up," he said. "We're going to run out of companies that have to issue sometime."

He noted that more BBB rated issuers have come into the market in the last couple of weeks, whether out of necessity or because they saw a window.

There are few companies that are coming into the market opportunistically, he said, with most needing to issue debt to raise cash.

This is a change from a few months ago when higher-rated names could issue if they saw a window, even if they did not immediately need the money raised.

Market uncertainty remains

Although some sense of normalcy has returned to the investment-grade market, there is still an underlying negative tone that has shown itself in coupons and recent inverted spreads between five and 10-year notes.

"I think it's kind of like what happened months ago," a source said. "People are still issuing but they're paying for it."

After a two-month period of little to no issuance, it's need that's propelling most new deals, not because the companies are getting a good deal.

"It's like everyone's saying, that no companies want to issue right now but they kind of have to," the source said.

Citigroup mixed as stock slides

In the secondary market, a trader said that "things [in the financials sector] continued to weaken today." Surprisingly, though, given the activity in its equity, "Citi's not doing much - I saw very little in Citi paper."

At another desk, Citi's bonds were seen to have widened out, though on limited activity, with its 6.875% bonds due 2038 seen 90 bps wider at 445 bps over comparable Treasuries.

A market source saw its 4.125% notes due 2010 at 500 bps over, out sharply from 379 bps a couple of days ago. However, its 5.125% notes due 2014 held steady at around the same 510 bps level at which they had been trading previously.

The New York-based banking giant's New York Stock Exchange-based shares meantime plummeted $1.69, or 26.41%, to $4.71, on volume of 724 million, almost five times the norm.

The shares slid and the bonds widened out despite Alwaleed's promise to increase his stake in the company by $350 million to 5%, from less than 4% currently. The Saudi prince also pledged his "full and complete support to Citi management," seen as an endorsement of CEO Pandit, who has been the target of some grumbling by investors over his inability to turn things around since taking the company's reins.

Investors are still smarting over Citigroup's inability to grab faltering Wachovia Corp.'s consumer banking network when the Charlotte, N.C., bank was teetering on the brink some weeks ago; the company ended up going to smaller rival Wells Fargo & Co. Inc.

Citi's dire situation was driven home just a couple of days ago, when it announced plans for 53,000 job cuts worldwide.

Other financials seen easier

Among other names in the sector, the first trader said he had also seen "very little" of Wachovia trading around. Bank of America, he said, "is probably out another 5 or 10 [bps]," and saw J.P. Morgan Chase & Co.'s bonds "probably the same [5-to10 bps wider]."

He said that recently, he'd seen a lot more utilities and industrials trading around. "I've been trading less banking and finance, just because it seems a little harder to do, because of the volatility involved in it."

He saw Goldman Sachs' 2018 bonds fall levels as low as 77 bid, 79 offered, from 83 bid, 85 offered two days ago.

"We feel like we're catching a little bit of a bottom here," he opined - but added that it was not yet definitive that the market is at such a bottom right now.

GE Capital retreat continues

He additionally saw General Electric Capital Corp.'s bonds "weaker again today - they didn't move as much today as they did yesterday, but they kind of picked up where they left off , and then slowed up a little." He said that "if they moved out 15, or 20, or 10 [bps] Wednesday, they probably only did 5 to 10 [bps] today."

He suggested that "there's some bottom-fishing coming in" in the credit - "people would say this is 450 bps over, this is whatever - I've got to buy here."

He also saw some short-covering in effect.

Non financials holding their own

Among non-financial names, International Business Machines Corp.'s 4.95% notes due 2011 were seen about 15 bps tighter at the 190 bps level.

AT&T's 5.10% notes due 2014 were at 345 bps over, around 20 bps tighter on the day

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 rose by anywhere between 25 and 35 bps, with Citi's CDS costs 35 bps wider at about the 375 bps over mark.

He saw debt-protection costs for major-brokerage paper 35 bps wider on the session as well.

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