Diageo, Panhandle Eastern, Fifth Third Bank price issues on strong open

By Andrea Heisinger and Paul Deckelman

Omaha, Oct. 23 - Diageo Capital plc, Panhandle Eastern Pipe Line Co., LP and Fifth Third Capital Trust VI priced issues Tuesday as market conditions improved slightly, sources said.

Little priced Monday because of the negative tone and sources predicted issuers were waiting to see what Tuesday's opening looked like.

In the secondary market - where advancing issues led decliners by a margin of not quite three-to-two - activity was seen to have perked up considerably, with overall volume more than double Monday's anemic levels.

While Merrill Lynch's bonds were seen trading a little easier ahead of the big investment bank's scheduled third-quarter earnings report on Wednesday, other financial names hung in there, including Goldman Sachs and Citigroup.

Meanwhile, credit default swap spreads on Merrill and such sector peers as Lehman Brothers and Bear Stearns, which had been swinging around wildly over the previous several sessions, were mixed and only slightly moved on Wednesday, possibly a sign that jittery investors may be calming down - or perhaps it was only the calm before the storm, since Merrill has warned of major losses.

Home Depot's long bonds were seen having widened out notably, while Sprint Nextel's eight-years firmed smartly.

Elsewhere, the new Panhandle Eastern 10-year bonds were seen having tightened slightly from their issue price.

New deals as market firms

Alcoholic beverage company Diageo priced $1.5 billion of bonds in tranches due 2013 and 2017 via bookrunners Banc of America Securities LLC, Citigroup Global Markets Inc. and Morgan Stanley & Co., Inc.

The $500 million tranche of 5.2% notes due 2013 priced at Treasuries plus 117 basis points while the $1 billion tranche of 5.75% 10-year notes priced at Treasuries plus 137 bps.

Fifth Third Capital's issue of 7.25% 50-year trust preferred securities was launched Monday. They priced at par of $25 per security. Bookrunners were Merrill Lynch, Pierce, Fenner & Smith Inc., Citigroup Global Markets Inc. and UBS Securities LLC.

Panhandle Eastern priced $300 million of 6.2% 10-year senior notes at 99.741 to yield 6.235% at a spread of Treasuries plus 182 bps via bookrunners Banc of America Securities LLC, J.P. Morgan Securities Inc. and Wachovia Capital Securities.

Things firmed slightly overall Tuesday, sources said, with the credit market's slight improvement spilling over.

"We opened really strong today," a market source said. "It was interesting because the market opened so strong but then faded a bit into the afternoon."

There have been promising signs in the last couple of weeks, with new issue premiums staying below 10 bps in most cases and 10-year benchmark notes rallying.

The rest of the week's volume depends on how things open Wednesday and Thursday, sources said.

"There were three today which was a good sign," a source said.

"There are a couple of deals expected overnight," another source said. "We'll just have to wait to see how things shape up tomorrow."

When the new Panhandle Eastern 6.20% notes due 2017 were freed for secondary dealings, a trader said that the bonds were trading "wrapped around 180 [basis points over comparable Treasuries], quoting them at 181 bps bid, 178 bps offered, versus their 182 bps spread at issue.

Merrill eases slightly ahead of numbers

A trader said there was "not a lot" doing in the finance sector, with Merrill Lynch's bonds a "touch weaker."

He saw the company's 6.11% subordinated notes due 2011 trading at 200 bps over earlier in the day and their five-year paper trading down at 150 bps. The latter issue, he noted, had been trading in the mid-140s the other day, "so they're a little bit weaker before their announcement."

But overall, he said, there was just "a lot of watching the stock market."

Goldman, Citi hold their own

At another desk, a market source saw "lots of volume" on Goldman Sachs' 6¼% notes due 2017, pegging the bonds as trading at yields between 5.79% and 5.81%, which translates to a spread of about 110 bps to 112 bps. They were actually better than they were on Monday, when the bonds were yielding between 5.87% and 5.90%.

The source also saw Citigroup's 5.30% notes due 2012, on which there also was "a lot of volume," trading at yield levels equivalent to a spread in the 104 bps to 106 bps area, essentially unchanged on the session.

Broker CDS spreads widen out

Elsewhere, a trader said that credit-protection costs for major brokerage names were mixed for another session. Merrill Lynch's debt-protection costs, which on Monday had jumped by 7 bps to 85/90 bps - a sign of increased investor unease with the company's prospects ahead of Wednesday's numbers since credit default swaps move inversely to investor confidence - narrowed to 82/87 bps in the morning, though they had come back out from those early tighter levels to end at 84/89 bps, still in by 1 bp on the session.

Among the other names, the cost of a five-year CDS contract to hedge against a possible event of default in Bear Stearns' paper, which on Monday had tightened by some 10 bps to 92/99 bps, opened trading Tuesday at 92/97/bps, but edged upward by the close to 93/98 bps.

Debt-protection costs for Lehman Brothers' bonds, which had likewise come in by some 10 bps on Monday to 87/94 bps, opened Tuesday at 88/93 bps, and stayed that way. Morgan Stanley's CDS costs, which were 5 bps tighter Monday at 52/57 bps, opened Tuesday at a solidly tighter 48/43 bps, and only widened slightly to 51/56 bps at the close.

Home Depot widens out

Elsewhere, a market source indicated that Home Depot's 5 7/8% bonds due 2036 were actively traded at lower levels, although no fresh negative news was seen out on the giant home-improvement supply retailer. Those bonds were seen about 14 bps wider on the session at a 235 bps spread.

Meanwhile, the Sprint Nextel 7 3/8% notes due 2015 were seen having tightened more than 30 bps on the session to 253 bps, again on no fresh market-moving news about the wireless telecommunications company.

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