Target, Viacom, TransCanada, Kimco, Northwest price on day of strong demand; SBC, financials gain

By Andrea Heisinger and Paul Deckelman

Omaha, Oct. 2 - Another day of stability in investment grade saw issues price from Target Corp., Viacom Inc., TransCanada Pipelines Ltd., Kimco Realty Corp. and Northwest Airlines, Inc.

"There were just a few deals today, but otherwise there's not too much," a market source said. "It's pretty quiet."

In the secondary market on Tuesday, advancing issues were seen outnumbering decliners by a better than five-to-three ratio.

Telecommunications company bonds such as AT&T Broadband and AT&T Wireless Services were among the more active issues, along with International Business Machines Corp. and General Electric Capital Corp. There was notable tightening in SBC Communications. The recent trend of tightening among the financial names continued, including Citigroup, Lehman Brothers and JP Morgan Chase. The new Target Corp. bonds tightened by several basis points, and the new TransCanada Pipeline issue was also a little tighter.

Target sees good interest

The Target issue was an upsized $1.25 billion, from the $1 billion it launched at.

There was strong demand for the notes, a source close to the deal said.

The 6.5% 30-year notes have a price of 99.722 to yield 6.521%, at a spread of Treasuries plus 175 basis points.

Viacom's issue was also upsized from a launch size of $350 million to a final $750 million of notes in two tranches.

The company's $500 million in 6.125% 10-year senior notes priced at 99.286 to yield 6.222%, at a spread of Treasuries plus 170 bps.

The $250 million in 6.75% 30-year senior debentures priced at 99.275 to yield 6.807%, at a spread of Treasuries plus 203 bps.

TransCanada priced $1 billion in 6.2% 30-year bonds at 99.565 to yield 6.232%, at a spread of Treasuries plus 145 bps.

Kimco, Northwest bring deals

Two issues that had been announced Monday priced Tuesday.

Kimco Realty sold $400 million depository shares of 7.75% cumulative perpetual preferred stock. The company sold 16 million shares at $25 each.

Northwest priced $454,343,000 of class A and B pass through certificates. The $338,498,000 in class A certificates have a coupon of 7.027% and priced at par. The $115,845,000 in class B certificates have a coupon of 8.028% and priced at par.

Schwab Capital Trust I announced an upcoming issue of fixed to floating-rate trust preferred securities, with no pricing date set.

Bookrunners are UBS Investment Bank and J.P. Morgan Securities Inc.

Tightening spreads draw issuers

Previously wide spreads and high new issue premiums have continued to tighten, sources said.

"It was pretty decent today," one market source said. "You're seeing deals upsized because of demand. You're also still seeing quite a bit of tightening [in spreads] especially in the secondary. I think we'll see that trend continue."

Tuesday's market opened firmer than Monday, leading to more issuers giving the green light.

"I think it will stay steady unless we have a soft opening tomorrow," a source said. "There's pretty strong demand right now, and the market itself is pretty strong."

Wednesday and Thursday should have a healthy volume of new issues before a slowdown Friday, sources said.

New Target bonds tighten up

A trader saw the new Target 6½% notes due 2037 "tightening up a little" to a spread over Treasuries of 171 bps bid, 168 bps offered, versus the 175 bps level at which they had priced earlier in the session.

And the new TransCanada Pipeline 6.20% notes due 2037, which priced at 145 bps, also tightened a bit, to 144 bps bid, 142 bps offered.

The trader saw Kimco Realty's new 7¾% perpetual preferred shares at $24.94 bid, $24.97 offered, versus the $25 par amount at pricing, calling the results "not bad - not bad on that."

The trader did not see any aftermarket dealings in several other new high-grade issues, including Viacom's upsized new 6 1/8% notes due 2017, which priced at 170 bps over, and its 6¾% bonds due 2037, which came at 203 bps over; and Northwest Airlines' new 7.027% class A notes due 2019, which came at 250 bps over the 10-year Treasury and its 8.028% class B notes due 2017, which priced at 370 bps over the Treasury issue due in August 2014. The latter two issues of enhanced equipment trust certificates will be secured by the aircraft that Eagan, Minn.-based Northwest will buy with the deal proceeds.

Telecoms, financials tighter

Back among established issues, telecommunications issues were considered among the most busily traded issues, and one of the biggest movers was SBC Communications. Its 4 1/8% notes due 2009 tightened some 20 bps to a spread of 81 bps over the two-year Treasury issue.

AT&T Broadband's 8 3/8% notes due 2013 came in by 6 bps to 143 bps over, while AT&T Wireless Services' 8 1/8% notes due 2012 were 3 bps tighter.

Among the financial names, GE Capital's 5.40% notes due 2017 were 6 bps tighter at 99 bps over, while its 6.15% notes due 2037 were 2 bps narrower. However, a market source said the company's 5 5/8% notes due 2017, after having firmed smartly on Monday, were lower Tuesday.

Also in the financial sector, Citigroup's 5% notes due 2014 were 8 bps tighter on the day at 91 bps. Lehman Brothers' 6½% notes due 2017 were seen at 173 bps, an 8 bps pickup, while JP Morgan's 5.15% notes due 2015 were also 8 bps tighter, at 112 bps over. Merrill Lynch's 6.05% notes due 2012 tightened 9 bps to 111 bps over Treasuries.

Citigroup, UBS CDS tighten

On the credit default swaps front, the cost of hedging against a possible default in the debt of Citigroup or UBS AG fell just a day after the two banking giants had warned that their latest respective earnings reports would show billions of dollars of red ink related to the recent problems with mortgage-backed securities in the wake of the subprime lending industry meltdown.

The cost of debt protection for Citigroup was seen having fallen 2 bps to around 28 bps for a five-year tenor, while CDS contracts on UBS declined 3.5 bps to around the 23 bps level.

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