Suncor, Kinder Morgan, KfW, Allianz price; market rebounds after negativity

By Andrea Heisinger and Paul Deckelman

Omaha, June 3 - There was little fallout Tuesday from negative headlines, evidenced by new issues from Kinder Morgan Energy Partners LP, Weingarten Realty Investors, Suncor Energy Inc., KfW and Allianz SE.

"Things are trading OK today," a market source said. "The stock market's kind of flat but it's been a pretty non-eventful day."

The morning opened lower in Europe and Asia, but credit was mostly unchanged to a touch tighter, a source said.

There were no more announcements of ratings downgrades for major brokerage names, but there were fresh rumors floating around that negative news could be coming from Lehman Brothers.

"Things were rebounding and then the Lehman stuff blew things up again," a source said.

These rumors had to do with liquidity concerns and news reports that the bank may need to raise further equity capital, he said.

In the investment-grade secondary market Tuesday, advancing issues again led decliners by a better than seven-to-six ratio, while overall market activity, reflected in dollar volumes, rose by 28% from Monday's pace.

Spreads in general continued to widen as Treasury yields kept falling, with the yield on the benchmark 10-year note, for instance, declining by 7 basis points to 3.89%.

Suncor sells $2 billion

Continuing the recent trend, the day's issues were again on the smaller side with most not breaking the $1 billion mark.

One of the biggest came from Suncor, which priced $2 billion of senior notes in two tranches.

The $1.25 billion of 6.1% 10-year notes priced at 99.883 to yield 6.116% with a spread of Treasuries plus 223 bps.

The $750 million of 6.85% notes due 2039 priced at 99.416 to yield 6.896% with a spread of Treasuries plus 230 bps.

Banc of America Securities LLC, BNP Paribas Securities, Morgan Stanley & Co. and RBC Capital Markets were bookrunners.

Kinder Morgan adds on

Kinder Morgan reopened issues of 10 and 30-year notes to add $700 million.

The $375 million of 5.95% 10-year notes priced at 98.287 with a yield of 6.186% and a spread of Treasuries plus 230 bps.

The $325 million of 6.95% 30-year notes priced at 99.455 to yield 6.993% with a spread of Treasuries plus 240 bps.

Total issuance for the 10-year notes is now $975 million, while the 30-year notes are now at $1.175 billion.

Wachovia Capital Markets, Banc of America and Deutsche Bank Securities Inc. were bookrunners.

Hartford sells junior debt

Hartford Financial Services Group, Inc. priced $500 million of 60-year hybrid junior subordinated debentures at 99.921 with a spread of Treasuries plus 425 bps.

The notes have a fixed coupon of 8.125% until 2018, then a floating rate of three-month Libor plus 460.25 bps.

They priced at the tight end of price talk of 425 to 430 bps, a market source said.

Their scheduled maturity is 2038, with a final maturity in 2068.

Books were run by Banc of America, Citigroup Global Markets Inc. and Lehman Brothers Inc.

Allianz brings $1.75 billion sub bonds

Allianz priced $1.75 billion, or 70 million, 8.375% perpetual subordinated callable bonds at $25.

They have an over-allotment option of $250 million, or 10 million securities, to be used within 15 days.

Citigroup and Merrill Lynch, Pierce, Fenner & Smith Inc. ran the books.

KfW priced the largest deal of the day with $3 billion in 4.5% 10-year global notes at 99.697 with a spread of Treasuries plus 52 bps.

J.P. Morgan Securities Inc., Nomura Securities and UBS Investment Bank were bookrunners.

Weingarten offers preferreds

Another reopening came from Weingarten Realty.

The company reopened its 6.5% perpetual cumulative redeemable preferred stock to add $150 million, or 6 million shares.

The reopened shares priced at $20.10. The total issue is now $350 million, or 14 million shares, including $200 million, 8 million shares, that were issued Jan. 30, 2007.

Wachovia Capital Markets was bookrunner.

An issue from American Financial Group, Inc. is still on the table.

A source close to the issue said it has not priced, but did not know the timing on when it would.

The company announced a $250 million issue of 10-year senior notes Monday, with bookrunners Merrill Lynch and UBS Investment Bank.

Wednesday will likely look much the same as Tuesday did unless something changes overnight, sources said.

"Assuming there's a decent open, I think we're going to see about the same," a source said.

Two market sources each said they knew of an issue or two that could come into the market, but nothing major.

New Suncor bonds firmer

When the new Suncor debt was freed for aftermarket dealings, a trader saw the company's 6.85% bonds due 2039 narrow to a spread over comparable Treasuries of 220 bps bid, 217 bps offered, versus the 230 bps level at which the bonds had priced earlier in the day. He saw Suncor's 6.10% notes due 2018 at 217 bps bid, 215 bps offered, in a little from their 223 bps spread at pricing.

Another trader saw slightly less tightening, pegging the Suncor 30-year paper at 229 bps bid, 226 bps offered, and its 10-years at 221 bps bid, 218 bps offered.

He also saw the new Humana Inc. 7.20% notes due 2018, which priced at 325 bps over on Monday, trading at 323 bps bid, 315 offered "right out of the chute." He saw the 8.15% bonds due 2038, which priced on Monday at 350 bps over, at 348 bps bid, 344 bps offered.

Lehman hangs in

Lehman Brothers Holdings Inc. attracted much attention, with The Wall Street Journal reporting that the brokerage was considering going to the capital markets to raise between $3 billion and $4 billion to bolster its liquidity. There were also market rumors that Lehman had been forced to borrow directly from the emergency credit line that the Federal Reserve set up to supply liquidity to Wall Street in the wake of the Bear Stearns meltdown earlier this year. Lehman vehemently denied that it had done any Fed borrowing recently, and said that at the end of the second quarter, the company had "well above $40 billion" of liquidity available.

A trader said that "everyone's kind of watching Lehman, wondering if this is another Bear Stearns-type situation." He said that things in general "kind of felt a little heavy ahead of the Lehman announcement."

While Lehman denied the Fed borrowing rumors, it declined to comment on the Journal's assertion that it would seek to raise additional capital.

While Lehman's New York Stock Exchange-traded shares fell by $3.22, or 9.52%, to $30.61 on very busy trading of 136 million shares - more than four times the norm - its bonds managed to weather the storm.

Lehman's 6.20% notes due 2014 were seen having tightened about 15 bps on the session to 295 bps.

A market source saw its 6.875% notes due 2018 having firmed by several bps to 329 bps, in active trading, while its 6.375% notes due 2017 were at 358 bps. Another Lehman issue seen coming in was the company's 5.625% notes due 2013. Its 6.50% notes due 2017 were seen not much changed from the 365 bps level at which they ended late last week.

However, another trader said that the cost of protecting Lehman debt against a possible default widened by some 15 bps to about 250 bps bid, 270 bps offered.

Bank, brokerage CDS costs rise

The trader said in general credit-default swap costs for big-bank or major brokerage paper widened on the day, reflecting renewed investor uncertainty about the financials.

He saw bank CDS costs mixed - anywhere from 1 bps tighter to 7 bps wider. Troubled thrift Washington Mutual's CDS costs were 15 bps wider, at 350 bps bid, 370 bps offered.

Brokerage debt-protection costs aside from Lehman's were anywhere from 5 bps to 15 bps wider.

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