Petro-Canada, ACE INA, Centerpoint Energy, Simon Property, Harsco, price as spreads remain tight

By Andrea Heisinger and Paul Deckelman

Omaha, May 12 - Spreads remained tight Monday, encouraging companies like Petro-Canada, ACE INA Holdings Inc., Centerpoint Energy Resources Corp., Simon Property Group LP, Harsco Corp. and Wells Fargo Capital XIII to price new issues.

In the investment-grade secondary market Monday, advancing issues led decliners by about a seven-to-six ratio, while overall market activity, reflected in dollar volumes, fell about 1% from Friday's pace.

Spreads in general had no discernable trend, in line with Treasury yields, which were mixed; while the yield on the benchmark 10-year note, for instance, declined by 1 basis point to 3.77, the three-year yield rose by 3 bps to 2.18%.

Petro-Canada matches talk

Petro-Canada priced $1.5 billion senior unsecured notes via HSBC Securities Inc., Citigroup Global Markets Inc. and Deutsche Bank Securities Inc.

The $600 million in 6.05% 10-year notes priced at 99.829 to yield 6.073% with a spread of Treasuries plus 230 basis points.

The $900 million of 6.8% 30-year notes priced at 99.784 to yield 6.817% with a spread of Treasuries plus 230 bps.

Both tranches priced in line with price talk of the 230 bps area, an informed source said.

Harsco at tight end

Harsco priced $450 million 5.75% 10-year senior notes at 99.895 to yield 5.764% with a spread of Treasuries plus 200 bps.

This was at the tight end of talk of 200 to 205 bps, a source said.

J.P. Morgan Securities Inc., Citigroup and RBS Greenwich Capital were bookrunners.

Both Harsco and Petro-Canada were well oversubscribed, a source close to both deals said.

"We were able to price the sizes we wanted at good levels," he said. "I would say they both went very well."

Simon Property oversubscribed

Simon Property priced $1.5 billion in two tranches.

The $700 million of 5.3% five-year notes priced at 99.749 to yield 5.357% with a spread of Treasuries plus 235 bps.

The $800 million 6.125% 10-year notes priced at 99.886 to yield 6.140% with a spread of Treasuries plus 235 bps.

Both came in on the tight end of price talk of 240 bps area, a source close to the deal said.

Banc of America Securities LLC, Citigroup, Deutsche Bank and Goldman Sachs & Co. ran the books.

Shorter maturities in favor

The book was several times oversubscribed for the issue, the source said, with demand fairly even between the five and 10-year tranches.

This has been the case lately, with investors looking less favorably on 30-year securities, he said.

During the height of the credit turmoil the long bonds were considered safer and got better prices, while now the opposite is true.

Many of the hedge funds coming back to the table have been favoring the shorter dated bonds, the source said.

"We definitely aren't having any trouble selling five-year bonds," he said.

Centerpoint upsizes

Another issue Monday came from Centerpoint Energy.

It priced an upsized $300 million of 6% 10-year senior notes at 99.171 to yield 6.112% with a spread of Treasuries plus 235 bps.

The size of the issue was increased from $250 million.

The notes came in on the tight end of price talk of 237.5 bps area, a source said.

Barclays Capital Inc., Credit Suisse Securities LLC and Lehman Brothers Inc. were bookrunners.

ACE INA Holdings priced $450 million 5.6% seven-year senior notes at 99.647 with a spread of Treasuries plus 225 bps.

Citigroup, J.P. Morgan and Wachovia Capital Securities LLC were bookrunners.

Wells Fargo Capital priced $2.5 billion of hybrid normal preferred purchase securities via J.P. Morgan, UBS Investment Bank, Merrill Lynch, Pierce, Fenner & Smith Inc. and Morgan Stanley & Co., Inc.

Terms were not available at press time Monday.

Sovereign plans deal

An upcoming issue was announced from Sovereign Bank.

The subsidiary of Sovereign Bancorp plans to issue $500 million of 10-year subordinated notes, according to a press release from the company.

Proceeds will go to general corporate and banking purposes.

More details were released on an upcoming issue from Private Bancorp.

They plan to issue 3 million 60-year trust preferred securities priced at $25, which will be non-callable for five years. Price talk is in the 10% area, according to an FWP Securities and Exchange Commission filing.

Bookrunners are Stifel Nicolaus & Co. Inc. and RBC Capital Markets.

Conditions still stable

Market conditions held over the weekend with more opportunistic issuers taking advantage of the stability.

Credit was looking good, with CDS about 14 or 15 bps tighter, a source said.

The week's issuers should be a fairly even split between industrial and financial names.

"We already saw a heavy concentration of self-funded issues a couple of weeks ago, and obviously that can't go on forever," a source said.

"So that would tip the scale back to the industrials."

Issuance beats 2007

A recent report from Banc of America Securities states that new issue supply accelerated from a record April into May with $60 billion pricing in the first nine days of the month.

Year-to-date issuance has exceeded the amount for the same time period in 2007.

According to the report, there has been $360 billion year to date in 2008 compared with $355 billion through May 9 in 2007.

The healthy amount of investment-grade issuance may be due in part to modest recovery in financial issuance and strength on the industrial side, according to a report from Fitch Ratings.

Investment-grade industrial issuance has remained resilient through the credit crisis, as shown by the levels that are on par with those of the last quarter of 2007.

About $437.5 billion of U.S. corporate bonds are scheduled to mature yet in 2008, with the bulk of those investment-grade issues, according to the report.

Focus on new deals

A trader said that things in secondary were "pretty quiet. A lot of the [high-grade] focus was on new issues" - that is, he explained, seeing them price rather than seeing them trading in the aftermarket - "and that's what drove things."

For instance, he said, he had seen no trading in the new Simon Property Group bonds.

He said that the only issue in which he had seen a much trading was the new Wells Fargo hybrids, which he saw at 101.25, up from their par-area issue price.

He saw Regions Bank's 7.50% notes due 2018 at a spread over comparable Treasuries of 355 bps, versus the 375 bps over at which they had priced on Friday.

Morgan Stanley's re-opened 6% notes due 2015, which priced Friday at 287.5 bps over, got as tight as 285 bps, though at the end of the day, they were around 286 bps bid, 285 bps offered.

Colgate tighter again, Glaxo gains

Among non-financial names, Colgate-Palmolive's 4.20% notes due 2013, which priced last week at 107 bps over and then tightened a little after that, tightened still further Monday - more than 10 bps - to close around 90 bps over.

GlaxoSmithKline Capital Inc.'s 5.65% notes due 2018, which priced at 173 bps over last week, tightened to 152 bps on Monday. Its 6 3/8% bonds due 2038, which also priced at 173 bps over, were trading around 167 bps over on Monday.

Another trader meantime said that both the 10-year and the 30-year tranche of the new PetroCanada deal had tightened to 225 bps bid, 223 bps offered from their 230 bps issue spread.

EnCana slips

"One of the bigger movers," he said, was EnCana Corp., which announced plans to split the company into two - a natural gas operation and an integrated oil company. He said that its 2038 bonds "backed up about 5 bps" into the lower 190s. He also said that credit-default swap contracts protecting company debt holders from a default were about 10 bps wider "on the negative reaction to the news about them splitting the company."

Otherwise, "it was one of the lower-volume days in quite a while."

Yet another trader saw debt-protection costs for bank bonds 1 to 2 bps tighter - although Washington Mutual was 1 bp to 5 bps wider. Brokerage house CDS contracts, meantime, were 1 bp tighter to unchanged on the day.

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