New issues creep to halt ahead of MLK holiday; banks prominent in thin deal activity; MBIA, Ambac sink

By Sheri Kasprzak

New York, Jan. 18 - As the market prepared for a break on the Martin Luther King, Jr. holiday Monday, new deal activity ground to a halt Friday.

"Not a lot to report today," said one market insider when asked about the volume of offerings on Friday.

"It's been slow. It's normally pretty quiet on Fridays but I think because of the holiday not a lot is really up for pricing."

As for the coming week, the insider said he doesn't have a lot to report either.

"Again, it's a short week so I don't think it's going to be active," he said. "We have a few things here and there, but nothing substantial."

Another sell-sider did comment on the activity among banks recently.

"I have seen a greater number than we normally see," he said. "It's been tough for banks. There probably are more out there than normal just because more banks are looking for extra cash."

Gainers lead, trading slumps

In the investment-grade secondary market Friday, advancing issues outnumbered decliners by around a six-to-five ratio. Overall activity, reflected in dollar volume, nosedived about 54% from Thursday's levels.

Target Corp.'s recent big bond issue continued to trade well in the aftermarket. The same was true of United Parcel Service's new bonds.

Sprint Nextel Corp. bonds were seen under pressure after the telecommunications company said it will cut 4,000 jobs and close 125 retail locations in response to a steep drop in its customer base.

In the credit default swaps market, debt-protection costs for MBIA Inc. and Ambac Financial Group Inc. widened out amid new troubles for the monoline bond insurers. MBIA's recently issued surplus notes meantime continue to languish at junk bond-like levels despite their nominal investment-grade ratings.

Lehman, JPMorgan among issuers

Among the banks seeking out extra cash during the week just completed were Lehman Brothers Holdings, Inc. and JPMorgan Chase & Co.

Lehman priced a $4 billion offering of senior medium-term notes with a spread of Treasuries plus 275 basis points.

The 5.625% notes (A1/A+/AA-) are due Jan. 24, 2013, and were priced at 99.544 to yield 5.731%. Those are set to settle Jan. 22

JPMorgan priced $2.35 billion in two-year floating-rate series G notes at Libor plus 50 basis points.

The notes, due Jan. 22, 2010, were priced at par and are not callable.

Elsewhere, Wells Fargo & Co. priced $1 billion in three-year series G floating-rate notes with a coupon of Libor plus 45 basis points at 99.717.

Early firmness fades

A trader said that there was "not really" much going on during Friday's abbreviated session. He said there had been "a little bit better tone first thing [Friday] morning - but it didn't really honestly hold up," fading as the early stock market bulge also evaporated.

He said that he himself had had "just a couple of trades of bank paper, but that was really about it." He said: "They're all a couple [of bps] weaker on the week - but I don't see a lot trading. The focus was on new issues."

Target continues to tighten

Target's new bonds were seen continuing to tighten up, in relatively active trading. Its 6% notes due 2018 were quoted Friday trading at 218 bps over comparable Treasuries, well in from the 235 bps spread at which the bonds had priced several days earlier.

Target's 7% bonds due 2038, which had priced at 270 bps over, were trading at 261 bps, while its 5.125% notes due 2013 came in as far as 189 bps, well down from the 215 bps mark at which they had priced.

Target's existing paper was meantime mixed; while its 5.875% notes due 2012, for instance, were seen having tightened about 10 bps to around the 180 bps level, a market source saw its 6 3/8% notes due 2011 having widened out around 15 bps to about 175 bps over.

United Parcel Service Inc. is another recent new issue which continues to do well in the secondary - although there have been suggestions by some traders that the two big new mega-deals were priced too cheaply to begin with, thus making some tightening up inevitable. The parcel company's new 5.50% notes due 2018, which priced a week earlier at 165 bps over, had firmed to 122 on Friday.

Sprint widens out

Among established issues, Sprint Nextel's 6% notes due 2016 were being quoted having widened out to 383 bps over, with its 8.75% bonds due 2032 and 6.875% notes due 2028 each having also widened. That followed the announcement by the Kansas City, Mo.-based wireless telecommer that it will lay off 6.7% of its work force and close 8% of its stores in order to bring costs in line with sales. Analysts say the moves show how badly Sprint is doing relative to larger rivals AT&T/Cingular and Verizon, and some warned that further cuts would be necessary. Sprint Nextel's shares nosedived about 25% on the news.

Ambac, MBIA roil market

A trader said "interest was on the monoline [bond insurers] - whether somebody comes in [to rescue them], or whether they're just going to languish."

That latter description meantime fit to a T the recently sold MBIA Insurance 14% surplus notes due 2032 - which priced at par a week earlier.

On Friday, they remained mired in the lower 70s, traders said, after several straight sessions in which the bond insurer's paper got hammered down as much as 8 to 10 points on the continued problems of its parent, MBIA Inc.

A trader saw those bonds at a wide 70 bid, 75 offered, about where they had gone home Thursday after swooning badly. Another estimated them at 71 bid, 74 offered.

While nothing specifically happened to MBIA itself on Friday - Thursday was bad enough, with the threat from Moody's Investors Service to possibly downgrade its Aaa financial strength ratings - there was bad sentiment in the sector as smaller peer Ambac Financial Group became the first bond-insurer to actually lose one of its vaunted triple-A ratings, which could force the company to ultimately quit the business or sell itself. Fitch Ratings cut Ambac's debt by two notches after the Number-Two bond insurer scrapped its previously announced plans to raise $1 billion in capital, given the 70% plunge in its shares over the past two days.

The troubles in the sector caused the CDS spreads on both of their bonds widen out drastically; the cost of protecting MBIA's bonds against a default shot up to a 26% upfront payment and 500 bps annually, about 10 percentage points wider on the upfront side over the prior two sessions, while Ambac's debt-protection costs ballooned out even further - nearly 12 percentage points - to 26.5% up front and 500 bps annually.

Another market source quoted an even higher upfront figure for both, in the 30% range.

A trader saw MBIA's AAA paper at 675 bps bid, 665 bps offered and Ambac's at 750 bps bid, 710 bps offered. He saw both companies' AA paper, meantime, trading like badly-distressed junk at between 25 and 29 cents on the dollar.

Countrywide carnage continuing

Also on the financial scene, Countrywide Financial Corp.' bonds continue to fall with its 3¼% notes coming due this May down 2 points at 94 bid, 95 offered and its 6¼% notes due 2016 off 3½ points at 78 bid, 80 offered. Like Ambac and MBIA, Countrywide is a nominally investment-grade credit now being battered around like a junk bond.

A trader said there was no specific reason for the latest decline except that "in general, they went up in a big burst, but ever since the news came down that they were going to be bought, they've been losing 2 or 3 points a day."

He noted that the 61/4s began the week at 93 bid, 94 offered "and they dropped throughout the week."

Another trader saw "a little bit of weakness" in the Countrywide issues, with the 61/4s at 80 bid, 82 offered, down from recent levels around 84 bid, 86 offered, while the 3¼% notes fell to 94 bid, 96 offered, off 2 points.

Its 5.80% notes due 2012 ended down 1½ points at 88.5 bid, while a market source called the '16s at 79, down nearly 4 points on the session.

The bond downturn has been replicated by the behavior of Countrywide's stock over the last few sessions - which have seen the company's New York Stock Exchange-traded shares give up all of the gains which those battered shares had notched on the initial good news more than a week ago that struggling Countrywide, the nation's largest independent mortgage originator, would be rescued from possible oblivion by banking giant Bank of America in a $4 billion-plus buyout deal estimated to be worth about $6.47 of B of A stock per Countrywide share.

The shares closed Friday down 52 cents, or 9.49%, at $4.96 - well below the $5.12 at which they traded before news of the deal first surfaced on Jan. 10.

That decline has led some observers, such as the online Wall Street Journal's M&A-oriented DealJournal blog, to declare, in a clever turn of phrase, that Countrywide's investors have "foreclosed" on the deal. The fall in the stock, DealJournal said, and the squandering of the roughly 27% premium B of A is willing to pay over where Countrywide's stock trades now "indicates a healthy dose of market skepticism that the deal, scheduled for third-quarter completion, will get done."

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