John Deere Capital prices floaters; new issue lull expected to end on Monday

By Andrea Heisinger and Paul Deckelman

Omaha, Feb. 21 - A new issue from John Deere Capital Corp. comprised most of what priced Thursday.

In the investment-grade secondary market Thursday, advancing issues led decliners by an eight-to-five ratio, while overall market activity, reflected in dollar volumes, was about the same as Wednesday's level.

Vale Overseas' bonds were seen having widened out substantially on heavy trading volume as investors pondered the effects on its capital structure of having to borrow large sums of money to fund a pending acquisition.

Goldman Sachs and John Deere Capital's existing bonds were each seen having tightened notably. Clorox Co. was seen having widened out.

Credit-default swap spreads for monoline bond insurers like Ambac Financial Group Inc. and MBIA Inc. were little changed on the day.

A trader said that spreads "started out bad in the morning, and then they started to get a little better in the afternoon." However, he said that overall, "it was a pretty quiet day, with not a lot to report."

He noted that the widely followed I-G 9 market performance index, which on Wednesday had widened out by 11 basis points on the session, opened 7 bps tighter on Thursday morning "and it just kind of stayed that way the whole day."

He opined that "I think people are starting to get a little more comfortable with what's going on overall in the credit markets. They're starting to sneak back into the market, because there's still plenty of cash out there."

Deere brings upsized floater

Back in the primary, John Deere company priced an upsized $500 million in two-year floating-rate notes at par to yield three-month Libor plus 25 basis points.

The issue was increased from $300 million.

Credit Suisse Securities LLC and J.P. Morgan Securities Inc. were bookrunners.

An issue from insurance company Allstate was also in the market, sources said, although it did not appear to have priced.

The issue of two-year floating-rate notes was announced at a size to be determined.

Bookrunners are Merrill Lynch, Pierce, Fenner & Smith Inc. and Morgan Stanley & Co. Inc., sources said.

"I'm finding a lot of issuers are doing short-dated notes," a market source said.

He said those from companies like Allstate will do well because there's not sub-prime exposure, and they're considered pretty safe.

That issue should come in the area of Libor plus 45 to 50 bps, he predicted.

Varying premiums

High-grade issuers are paying a wide array of new issue premiums depending on the company.

Better names are paying between 10 and 20 bps, sources said, while others shell out 30 to 40 bps.

Wednesday's issue from KeyCorp Capital Trust X was pretty attractive, a source said.

"Eight percent was the magic number," he said of the dividend on the trust preferred securities.

"They don't seem to have any problem selling those."

The Treasury markets rallied substantially by mid-day Thursday, a source said, but he was still surprised to see any new deals.

But another source said he was surprised there weren't more with the stability in the market.

"There's not any reason people didn't go this week," he said. "I've been trying to figure that out myself. I think they're just taking a breather."

Busy week seen

Meanwhile, a backlog has been building which should come out soon.

Next week should be very busy, a source said.

"We have a lot of guys lined up, and we are expecting next week to be busy, and the week after that, and possibly the week after that."

Nothing is expected to come into the market Friday, but another day of stability could urge more issuers to come into the market Monday.

"As long as there's no credit blowups or anything, we should see a pretty substantial calendar Monday," a source said.

A Vale of tears for investors

In trading, Vale Overseas' 6.875% bonds due 2036 were one of the biggest losers on the day, and in heavy trading to boot. A market source saw those bonds having widened out more than 30 bps to 289 bps over - the equivalent of a 3¼ point loss in the bonds' dollar price, down to the 93.5 level.

The Brazilian metals mining concern, currently in takeover talks with Xstrata, an Anglo-Swiss miner, was reported to have informally raised its offer price, raising the specter among fixed-income investors that the company may have to load up on leverage to get a deal done.

Clorox weak

Elsewhere, Clorox's 5.45% notes due 2012 were seen having widened out more than 20 bps to 225 bps.

On the upside, Goldman Sachs' 5.625% notes due 2017 were seen having tightened about 15 bps to just over 200 bps. John Deere Capital's 7% notes due 2012 were about 15 bps tighter at 115 bps.

Monoline CDS costs steady

A trader said that credit-default swap spreads on major bank paper "got a little narrower on the day" by between 1 and 5 bps, with no one name standing out, while major-brokerage CDS costs were generally wider by around the same amount. CDS costs move inversely to investor confidence in a company's underlying debt.

He said that the problems of the monoline bond insurers are likely to be a dominant area of focus in the near future, but until some definite developments occur - further widespread deterioration in the bond insurers' ratings on the one hand or the crafting of some kind of a bailout mechanism on the other, "people are keeping their powder dry, as far as that's concerned."

He meantime saw the debt-protection costs of both Ambac and MBIA pretty much unchanged on the day, with the CDS spreads on Ambac's AAA-rated paper at 400 bps bid, 420 bps offered and MBIA's CDS spread on its AAAs at 395 bps bid, 415 bps offered.

He said that the credit-protection costs on the AA rated debt of both companies were steady at between 9% and 11% in upfront costs plus 500 bps annually.

Another trader meantime saw MBIA's 8% surplus notes due 2014 up a point on the session at 92 bid; since pricing at par in mid-January, those notes have gyrated wildly, even trading like distressed junk bonds at levels as low as 70 cents on the dollar despite their Aa3/AA/AA rating; the bonds have recently pushed back above the 90 level on expectations that banks and insurance regulators are close to crafting a bailout plan that will let the monolines obtain billions of dollars of badly needed capital to keep their credit ratings from being downgraded or, in the case of a few of the insurers, further downgraded.

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