XTO, Ryder price ahead of Fed; secondary quiet as spreads seen mixed, bank CDS weak

By Andrea Heisinger

New York, Aug. 4 - XTO Energy Inc. and Ryder System, Inc. strategically priced new issues Monday ahead of the Federal Reserve meeting.

It's not expected the Fed will make drastic changes, if any, to key interest rates during its meeting Tuesday, sources said.

"I think things have kind of leveled off after they cut rates so many times," one market source said.

The secondary market saw subdued trading volume, with little in the way of new issues to track levels on.

"It's a typically quiet summer Monday," one secondary source said.

XTO at tight end

Oil and natural gas company XTO priced $2.25 billion in four tranches - a large size that sources said wasn't a surprise.

The $250 million of 5% two-year notes priced at 99.988 to yield 5.007% with a spread of Treasuries plus 248 basis points.

The $500 million of 5.75% five-year notes priced at 99.931 to yield 5.767% with a spread of Treasuries plus 253 bps.

The $1 billion of 6.5% 10-year notes priced at 99.713 to yield 6.54% with a spread of Treasuries plus 258 bps.

The company also reopened its 6.75% 30-year notes, priced at 94.391 plus accrued interest, with a spread of Treasuries plus 263 bps.

All of the tranches priced at the tight end of priced talk, which was 250 bps for the two-year notes, 255 bps for the five-year notes, 260 bps for the 10-year notes and 265 bps for the 30-year notes.

Total issuance for the reopened tranche is now $1.45 billion, including $950 million issued in July and August 2007.

Banc of America Securities LLC and Lehman Brothers Inc. ran the books.

Market sources were not surprised at the timing or size of the issue.

"It's not shocking, since they have acquisitions," a source said. "It was pretty widely expected."

The company has earmarked the proceeds for property acquisitions, both pending and future, according to the issue's preliminary prospectus.

Transportation and logistics company Ryder also issued Monday.

The company priced $300 million 7.2% medium-term notes priced at 99.783 to yield 7.238% with a spread of Treasuries plus 375 bps.

Banc of America Securities LLC, Mizuho Securities and RBC Capital Markets ran the books.

Week off to quiet start ahead of Fed

The Federal Reserve meeting Tuesday likely means there will be little in the way of new issues on a day that would normally see interest from one or two companies, sources said.

Monday's issues were likely done strategically to get in ahead of the meeting.

"There was not a ton of news," one source said. "People are just waiting for the Fed, even though it's something like 92% [in futures] that they'll keep the [key interest] rate at 2%."

Oil prices fell slightly on the day, which typically helps equities, the source said. This was not necessarily the case Monday, although it was hard to tell with so little activity.

Tuesday is seen as slow while issuers wait for an announcement from the Fed meeting.

Spreads seen mixed in secondary trading

The secondary market was "very quiet" Monday, market sources said, remarking that the volume was a typical start to the week during the summer months.

Levels on the new XTO bonds were not seen after trading.

The new Ryder System 7.2% 2015 notes were seen tightening to 367 bps bid, 362 bps offered after pricing, a source said.

Although sources could agree that the day was lacking in trading volume, they differed on what spreads were doing.

One remarked that spreads were "a hair wider," while another a short while later said there were "a little tighter."

"It's somewhat difficult to tell because there's not a lot of trading," a source said. "There's really not much to even get excited about."

But all sides concurred that Tuesday is likely to be even less exciting with fewer issues trading due to the Fed meeting.

"That's really not going to help things any," a secondary source said. "It will just make things slow. There's really not a lot to get excited about right now."

Existing issues seen mixed

Last week's issue of 6.8% 10-year notes from Rogers Communications, Inc. was seen at 269 bps Monday, tightening from 278 bps at pricing.

Also seen tightening were Target Corp.'s 6% 10-year notes. They priced at 235 bps over Treasuries, and were trading Monday at 187 bps.

Some issues were seen widening, including those from American Express Co. and Time Warner Cable Inc.

The AmEx 5.875% five-year notes were seen widening more than 40 bps to 307 bps, versus 262.5 bps at pricing on May 28.

Time Warner's 6.75% 10-year notes priced at 250 bps on June 16, and were seen at 257 bps Monday.

Merrill Lynch, HSBC seen as day's biggest movers

Merrill Lynch & Co.'s bonds were seen tightening the most as the week began. The 6.875% 10-year notes were seen better by more than 10 bps.

Hewlett-Packard Co. and General Electric followed suit, also tightening more than 10 bps.

At the other end of the spectrum, HSBC Finance Corp., financial company Jefferies and Husky Energy Inc. were each seen widening between 10 and 20 bps on the day.

Bank CDS levels were seen higher Monday.

Lehman Brothers was seen at 285 bps bid, 295 bps offered, while Merrill Lynch was at 255 bps bid, 265 bps offered.

Morgan Stanley & Co., Inc. was seen at 220 bps bid, 230 bps offered.

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