Export Development Canada, So Cal Edison, Detroit Edison price, prove primary open; Morgan Stanley volatile

By Andrea Heisinger and Paul Deckelman

New York, Oct. 7 - As proof that bad market conditions will not discourage issuers, Export Development Canada, Southern California Edison Co., and Detroit Edison Co. priced issues Tuesday.

Two of them were announced and priced late in the day after various headlines and market fluctuations passed.

In the investment-grade secondary market Tuesday, advancing issues trailed decliners by around a six-to-five ratio. Overall market activity, reflected in dollar volumes, jumped 80% from Monday's pace.

Spreads in general were seen a little tighter, in line with generally higher Treasury yields; for instance, the yield on the benchmark 10-year note rose 5 basis points to 3.50%.

The new Detroit Edison and Southern California Edison deals were seen having come too late in the session for any meaningful aftermarket dealings.

Among the existing bonds, Morgan Stanley's issues were rocking and reeling, battered and buffeted by market rumors that its deal with Japanese banking giant Mitsubishi UFJ, which is to invest $9 billion in the New York-based financial institution in return for a 21% stake, was breaking down and coming apart. Later in the day, however, Morgan Stanley said that everything was going according to plan.

William Wrigley Junior Co.'s bonds were seen substantially wider after Moody's Investors Service cut the Chicago-based confectionary company's debt ratings to junk from their previous status as a single-A investment-grade credit, following completion of the debt-fueled $20 billion-plus acquisition of a competitor.

Canadian bank prices bonds

A funding source for exporting companies, Export Development Canada, priced $1 billion in 2.625% bonds due 2011 at 99.901 to yield 2.659% with a spread of Treasuries plus 123 bps.

Credit Suisse, HSBC Securities, Merrill Lynch, and RBC Capital Markets ran the books.

The issue proved that the market for new deals is not closed, if issuers are willing to pay the price, a source said.

The government-run AAA rated agency had a higher than normal spread, but was still able to get the issue done successfully, a source said.

Its previous issue, $1 billion of three-years notes priced in June, came at a spread over Treasuries of 93.5 bps, although the yield was 3.8%.

Utilities continue dominance

Two utility names priced small issues at high cost late in the day Tuesday, surprising some.

Southern California Edison priced $500 million of 5.75% first and refunding mortgage bonds due 2014 at Treasuries plus 340 bps.

This was at the tight end of whispered price talk, a source said, which was 340 to 350 bps. There was no official price guidance.

Banc of America Securities, Citigroup Global Markets, Deutsche Bank Securities, and J.P. Morgan Securities ran the books.

The second deal came from Detroit Edison, pricing $250 million in 6.4% five-year senior notes. They priced at 99.742 to yield 6.462% with a spread of Treasuries plus 400 bps.

This was tighter than price talk, which was 425 bps, according to a market source.

New issues slowly return

The amount of deals coming into the investment-grade market hasn't stopped completely in the recent tumultuous weeks. What has happened is deals coming out in spurts when issuers thought there was a window.

Tuesday was one of these instances. Two of the day's issues were not announced or priced until late afternoon, after the companies had a chance to see what the market conditions were like.

Both also carried a high new issue premium, pricing at spreads that would normally be seen for issuers with low BBB ratings, a source said.

"It's been the case since the market went down, that you're going to have to pay," he said.

Even Export Development Canada, a AAA rated government agency, paid a steep price for its $1 billion issue. The issue normally would have had a spread of far less than 100 bps.

Earlier in the day there was no shortage of news to scare issuers away from the market. It was for this reason, a source close to the Southern California Edison deal said, that the company waited until after 4 p.m. ET to price its deal. Detroit Edison priced well after 5 p.m. ET.

"I think that's exactly it," the source said in reference to the two companies feeling out market conditions.

Among the day's developments was an announcement of a government plan to aid the nearly frozen credit market. As part of the plan, called the Commercial Paper Funding Facility, the government will buy large amounts of short-term debt to stimulate the credit markets.

It's an effort to stop the tide of economic failure spreading across the world's stock markets and lenders.

There was a bit of good news for the day, with Federal Reserve chairman Ben Bernanke hinting at a possible cut to the benchmark interest rate.

"That was viewed as some good news," a source said, "but kind of overshadowed by everything else."

The Dow Jones Industrial Average was once again down for the day, despite the comments from Bernanke.

Also on the radar of concerns was an earnings announcement from Bank of America. The earnings were disappointing and the company also announced it is raising capital.

Still, it was encouraging to syndicate desks to see issuers continue to come into the market, a source said.

"I think we could see some more tomorrow," he said. "Maybe some more utilities or higher rated names."

Another source said he had been both making and fielding calls from potential issuers, encouraging them to look at the market in the next couple of days.

"It may be more of what we saw today, with people waiting [until day's end] to price."

Morgan Stanley bounces around

A trader said that Morgan Stanley "was a little bit of a roller-coaster ride when there were rumors around that their thing with Mitsubishi wasn't going to get done."

He said that the company's 6.625% notes due 2018 traded down to 61, from Monday's closing levels around 65. He saw the bonds going out on Tuesday at 62 bid, 64 offered, still down several points on the session.

Another market source saw Morgan Stanley's 6.75% notes due 2011 losing 2 points to 67 bid, while its 3.875% notes due 2009 dropped to 90 bid from 92.5.

At another desk, a source quoted the 6.625s at about 65 - but said that was down 3 points on the session. On a spread basis, the bonds gapped out to 976 bps from 910 bps on Monday.

Morgan Stanley's New York Stock Exchange-traded shares plunged as much as 40% intraday before finally coming off their lows, but still lost $5.85, or 24.89% to end at $17.65. Volume of 90 million shares was nearly triple the norm.

Morgan Stanley said the deal with Mitsubishi - Japan's largest bank - "is proceeding on track" and will close as soon as this weekend. With the Federal Reserve having already given its blessing to the transaction, all that remains is for the Fed's usual five-day post-approval waiting period to expire.

The company said Tuesday that U.S. regulators had granted an early termination of the Hart-Scott Rodino antitrust review process, thus removing another hurdle for the deal.

Besides the Fed, other "key global regulators" have approved the agreement by MUFJ to buy $3 billion of Morgan Stanley's common stock at $25.25 apiece and $6 billion of convertible preferred stock.

The Fed meantime said that it had concluded that even with the investment, Mitsubishi would not control the investment bank.

In the credit-default swaps market, however, players remained wary of Morgan Stanley's prospects; the cost of protecting its debt against a possible default hovered around 19% to 21% up front, plus 500 bps annually.

Thin trading

Apart from the Morgan Stanley gyrations, the first trader said that "it was a back-and-forth day. The stock market did better first thing, but then sold off as the day progressed, and we gave a lot [of the market's early gains] back."

He characterized the secondary as "thin, with not a lot trading. It was a tough day."

Another trader summed up the market's status by declaring "everything's bad."

Wrigley off as bonds are dumped to junk

Apart from the financials, Wrigley's 4.65% notes due 2015 were seen having widened out by some 100 bps to around 411 bps after Moody's Investors Service downgraded the candy and chewing gum company's senior unsecured debt rating to Ba2 from A1 previously , following the completion of its $23 billion acquisition of rival candymaker Mars Inc.

On a dollar-price basis, the bonds slid nearly 5 points from Monday's close to around the 84.625 level, in one large-sized transaction, a rarity for that particular credit.

Later in the session, a source saw the bonds tighten to about 397 bps - still out more than 80 bps on the session.

Moody's, in dropping Wrigley to junk status, said that the ratings "reflect the increased financial leverage resulting from the incurrence of transaction related debt" from the Mars purchase. The ratings "take into account Wrigley's overall modest scale as compared to its packaged goods peers, its narrow product portfolio, and an unfavorable shift in financial policy as it relates to debtholders."

However, the agency also said that "while credit metrics are weaker than those typical of a Ba2 rated company, the ratings are supported by Wrigley's strong business fundamentals including its global geographic reach, leading market shares in core categories, and high profit margins."

Wrigley is rated A+ by Standard & Poor's and is not rated by Fitch.

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