XTO plans new deal, existing bonds wider; financials mostly firmer

By Paul Deckelman and Sheri Kasprzak

New York, July 22 - XTO Energy Inc. made news in both the primary and secondary arenas of the investment-grade bond market Tuesday - but overall headline-worthy events were few and far between. Financials were generally better.

The Fort Worth, Texas-based oil company said it plans to offer new notes to help finance an acquisition although the purchase itself sent its existing debt to lower levels.

Advancing issues trailed decliners by a seven-to-six ratio, while overall market activity, reflected in dollar volumes, was up 30% from Monday's pace.

Spreads in general showed were seen tightening, in line with higher Treasury yields; for instance, the yield on the benchmark 10-year issue widened by 7 basis points to 4.11%.

XTO deal on the horizon

An upcoming sale of notes from XTO Energy led primary market news Tuesday even as the market remained fairly quiet.

"I heard about that," said one sell-sider of the XTO buy.

"I don't know anything about the notes, but since they just announced the purchase, the sale will probably happen sometime in the next few months."

The XTO acquisition is set to conclude in early October.

The oil and natural gas producer plans buy properties adjacent to existing XTO operations in the Barnett Shale region of Texas in an $800 million deal.

A portion of the purchase price will be funded through the sale of long-term senior notes, said a statement from XTO. The rest will be funded through equity and commercial paper.

The acquisition will add 35 million cubic feet of natural gas to its production base.

The third party XTO is purchasing the property from was not named.

"XTO's position in the core of the Barnett Shale has provided confident production growth, increasing resource potential and value creation for our shareholders," said Bob Simpson, chief executive officer of XTO, in the statement.

"These properties are located right in the heart of our operations and provide for more of the same. Given our extensive knowledge of the shale in this region, we anticipate ultimate recovery from these assets will be more than 1 trillion cubic feet of natural gas over time."

The purchase is expected to close in early October.

New Nabors not much moved

A trader saw the recently priced Nabors Industries Inc. add-on 6.15% notes due 2018 trading at 255 bps bid, 250 over, little changed from the spread over comparable Treasuries of 255 bps at which the company priced $400 million of the notes this past Friday.

Otherwise, he said, there was little or nothing going on in his part of the market. For instance, he saw "not a single quote" in the bonds of Caterpillar Inc., even though the maker of bulldozers and other heavy equipment reported strong quarterly earnings - a 34% jump in profits from a year ago, chiefly on overseas sales. The results beat analysts' expectations.

For activity to pick up, he said, "we're going to need the calendar to pick back up."

At another desk, Cat's 4.30% notes due 2010 were seen having firmed a little to a spread of 101.

XTO widens on spending plans

Elsewhere, XTO Energy Inc.'s 6.375% bonds due 2038 were seen having widened out about 20 bps to the 230 bps mark, investors apparently more fazed by the company's plans to raise and spend $2.1 billion to acquire production rights to shale acreage in Texas, Arkansas and Louisiana than they were impressed by a solid earnings gain.

The Fort Worth, Tex.-based independent energy exploration and production company said net income rose to $575 million, or $1.11 a share, from $432 million, or 91 cents, a year earlier.

Financials mostly firmer

For the most part, however, spreads were tighter, helped by higher Treasury yields as well as renewed investor confidence in the financial sector, despite some large losses reported by names like Wachovia Corp.

Even with that loss, Wachovia's 5.75% notes due 2017 were seen in 23 bps from where they had begun the week, closing at 427 bps over in Tuesday's trading.

Among other financials, Citigroup's 5.30% notes due 2012 were seen 30 bps tighter than recent levels at 270 bps over, while its 5% notes due 2014 were 40 bps tighter.

Goldman Sachs Group's 5.625% notes due 2017 firmed by 32 bps to 280 bps over, while J.P. Morgan Chase & Co.'s 6.125% notes due 2017 were 30 bps better at 250 bps over. Goldman's 6.60% notes due 2012 and J.P. Morgan's 6.75% notes due 2011 were each seen in about 15 bps on the day at the 205 bps level.

Kraft gains, Walgreen eases

Back among the non-financial names, Kraft Foods' 7% notes due 2037 firmed by 10 bps to 264 bps over.

The new Walgreen Co.'s 4.875% notes due 2013 were 4 bps wider on the day at 163 bps, but were still well in from the 175 bps spread at which the drugstore giant priced $1.3 billion of those bonds last week.

In the credit-default swaps market, a trader said that debt-protection costs for the big banks and the major brokerages were anywhere from 5 bps to 15 bps tighter, a sign of increased investor confidence in the sector.

Despite its $8.86 billion quarterly loss, Charlotte, N.C.-based banking giant Wachovia's CDS cost tightened by 15 bps, the trader said, to 290 bps bid, 300 bps offered.

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