Target, Southern California Edison, Deere price on continued stability, week predicted to be quiet

By Andrea Heisinger and Paul Deckelman

Omaha, Jan. 14 - The investment-grade market was stable Monday, leading to issues from Target Corp., Southern California Edison Co. and John Deere Capital Corp.

Sources said this week should have a steady stream of new issues, although it will be quieter than last week when a flood of new issues from a backlog came out.

In the investment grade secondary on Monday, there wasn't all that much going on, traders said, owing to the continued market focus on the primaryside, which again saw heavy new issuance, including the $4 billion multi-tranche offering from Target Corp. That issue actually priced too late in the session for any aftermarket dealings - but before that, the big discount retailer's existing bonds were seen lower.

Elsewhere, Goldman Sachs' new 10-year bonds continuing to trade well in secondary, having tightened from their spread at pricing. Bond insurer MBIA's new bonds were trading, but were not much moved.

Existing financial issues pretty much held their own, despite a glut of bad news expected when major banking concerns like Citigroup and others report their latest numbers this week.

Target prices $4 billion

Target's $4 billion issue in three tranches "took a big chunk out of the market," a market source said.

The $500 million tranche of five-year notes priced at Treasuries plus 215 basis points, while the $1.25 billion in 10-year notes priced at Treasuries plus 235 bps. The $2.25 billion tranche of 30-year notes priced at Treasuries plus 270 bps.

All of the tranches priced in line with price talk.

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

SoCalEd's upsized $600 million

Southern California Edison priced an upsized $600 million in 5.95% 30-year first and refunding mortgage bonds at 99.54 to yield 5.983% at a spread of Treasuries plus 160 bps.

The issue was increased from $500 million, and priced in line with price talk.

Bookrunners were Bank of New York Capital Markets Inc., Citigroup, Lehman Brothers and J.P. Morgan Securities Inc.

John Deere also upsized its offering, from $300 million to $350 million of three-year floating-rate notes.

They priced at par to yield three-month Libor plus 70 bps.

Banc of America and Deutsche Bank Securities Inc. were bookrunners.

This issue had about a 10 bps new issue premium, a market source said.

"It seems like a decent coupon," he said. "It's in line with their ratings."

ADB brings $1 billion

The Asian Development Bank priced $1 billion in 3% three-year notes at Treasuries plus 51.75 bps, a market source said.

The notes are priced at 99.894.

Bookrunners were Morgan Stanley, Daiwa Securities and RBC Capital Markets.

Steady deal flow seen

The rest of the week's issuers should be a mixture of corporate and financials, a source said.

"Financials are still benefiting from the positive news from Countrywide and Bank of America," he said.

"Industrials are up and the tone is more firm today."

Things should be quieter than last week, but there will be issuers.

"The tone is more firm today than Friday," a source said. "It will be quiet in financials ahead of bank earnings. A lot of people in the market are waiting to see what happens."

Another source said Tuesday should see a "decent showing" of issuers.

"The stock market is seeing stability, and that looks good for the bond market," he said. "The trend has been people coming in if there's been a couple of days of stability."

Some issuers, like banks, will step in when they can this week, a source said.

Target existings weak

Advancing issues beat decliners Monday by a better than seven-to-five ratio. Market activity, reflected in dollar volume, was off about 30% from Friday's busy session.

With Target bringing $4 billion of new supply to market, the retailer's existing bonds were under pressure.

Its 5.375% notes due 2017 were seen having widened out to between 215 and 220 basis points over Treasuries from prior levels around 200 bps. Its 6.50% bonds due 2037 likewise pushed out to around the 250 bps level from 230 bps previously.

Among recent news issues, a trader said that Goldman Sachs' 5.95% notes due 2018, which priced at 215 bps on Friday "started generically" at 210 bps bid, 205 bps offered, but traded a couple of times at 208 bps or 207 bps. He estimated that the bonds were left at 207 bps bid, 203 bps offered.

But he said that "with the Target deal" and other big new-issuance events, "a lot of focus has been taken off [new financial paper's secondary dealings] them."

He saw MBIA's new surplus notes due 2033, which priced at par on Friday, starting the day Monday at 100.75 bid, 101.5 offered, but ended the day at 100.25 bid, 101 offered., "so that didn't move a lot - but again, we had the SoCal [Edison] deal, and the Target deal, and that kind of took some of the thunder out of these other issues.,"

Bank steady

He said that he had "not seen a lot" of change in existing bank paper ahead of Tuesday's release of what are expected to be bad fourth-quarter numbers by Citigroup and other big banking concerns, although at the end of the day, he did see some Citi 5-year paper trade, and some other short issues from names like Lehman Brothers and Bear Stearns. He said the paper "traded a little better on the brokerage side," while the banks "held their own."

A market source saw Merrill Lynch's 6.050% notes due 2016 trading nearly 20 bps tighter at under 250 bps.

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