Kraft, Kinder Morgan price small deals, John Deere Capital brings FDIC notes; Goldman gains despite loss

By Andrea Heisinger and Paul Deckelman

New York, Dec. 16 - New deals from industrials Kraft Foods Inc. and Kinder Morgan Energy Partners LP balanced the continuing issuance backed by the Federal Deposit Insurance Corp., under which John Deere Capital Corp. priced under Tuesday.

It was one of the first non-bank holding companies to issue under the program. General Electric Capital Corp. was the first, and has since reopened its deals to add more debt.

In the secondary market Tuesday, advancing issues continued to lead decliners, by a nearly two-to-one ratio. Overall market activity, reflected in dollar volumes, soared by some 47% from Monday's pace.

Spreads in general were seen wider, in line with lower Treasury yields; for instance, the yield on the benchmark 10-year note fell by 10 basis points to 2.40%.

However, with the financial markets generally reacting positively to the unexpectedly large Federal Reserve cut in its target federal funds rate, to a range of zero to 0.25% from 1% previously, and the central bank's pledge to use any and all tools available to stabilize the economy, financial issues, particularly the recently priced FDIC-backed bonds, were seen having tightened up solidly, including issuers like Bank of America Corp., General Electric Capital Corp. and Citigroup.

Bonds of another well-known financial name - Goldman Sachs Group Inc. - were seen actively trading after the big investment bank reported a sizable net quarterly loss - the first since the company went public a decade ago - as even the relatively well managed and conservatively run Goldman, which managed to avoid the fate of such failed former competitors as Bear Stearns and Lehman Brothers, could not escape being tripped up by the ongoing credit industry meltdown. However, investors looked beyond the loss and took the Goldman paper higher.

Kinder Morgan prices $500 million

Kinder Morgan Energy Partners priced $500 million of 9% 10-year senior notes at 99.973 to yield 9%. The issue did not price at a spread, a source close to the deal said.

Price talk was instead at a coupon of the low 9% area, which it came at the tight end of, he said.

Barclays Capital Inc., Deutsche Bank Securities and RBS Greenwich Capital were bookrunners.

There was strong demand for the issue, although the source could not say how oversubscribed the books were.

He did say there was "a big reverse book as well."

Kraft prices small deal

Kraft Foods priced $500 million of 6.75% five-year notes at 99.896 to yield 6.777% with a spread of Treasuries plus 525 basis points.

BNP Paribas Securities, Citigroup Global Markets, Deutsche Bank Securities and RBS Greenwich Capital ran the books.

Demand for the bonds was high, a source close to the deal said. He could not disclose how oversubscribed the books were, but did say it was "many times."

The convenience food company has gotten a bump from the recent economy as more people eat at home.

John Deere does FDIC notes

Farm machinery manufacturer John Deere priced $2 billion of 2.875% senior notes due 2012 under the FDIC Temporary Liquidity Guarantee Program.

The triple-A rated notes priced at 99.769 to yield 2.945% with a spread of Treasuries plus 184.9 bps.

They priced at a coupon, a source close to the deal said. He commented that the issue went well and that it was nice to see some diversity in the FDIC issues.

Bookrunners for the issue were Banc of America Securities LLC, Credit Suisse Securities and RBC Capital Markets.

Market untouched by Fed cut

The market tone got a slight boost from the Federal Reserve rate cut to nearly zero Tuesday, a market source said. The cut to the Federal funds rate to a range of zero to 0.25% that came at the end of a two-day meeting will likely not encourage many issuers, he said.

"I think anyone who was thinking of issuing is already doing it or they're waiting until after the holidays," he said. "We may have a few more non-financial issuers but not a lot."

Fed cuts used to be influential, with issuers waiting until after the announcement to price an issue. The bulk of Tuesday's deals were priced before the cut amount was announced.

The rate of zero or close to it was predicted months ago, a source said, although it's likely not going to have the large effect it was once thought to have.

"Back then I think people thought it was a big deal every time they cut it [Fed rates]," the source said.

"Now it's just one more thing and no one knows if it will work."

Issuance seen slow to holidays

New issues are likely going to slow further leading into the few days prior to Christmas, a source said. There will continue to be reopenings of the FDIC-backed notes, and maybe even small new issues, he said.

There also may be a handful of non-financial names needing to get offerings priced before 2009, but many have already done so, he said.

Recent financials roll

Among the financial credits seen trading strongly on Tuesday was Bank of America's 3.125% notes due 2012, easily the busiest high-grade issue of the day, with over $170 million of the bonds trading hands.

The Charlotte-based banking giant had priced $6.75 billion of those bonds as part of a four-part deal on Dec. 1 at a spread over comparable Treasuries of 201 bps; on Tuesday, a market source saw them having come in to 122 bps over, a pick-up of 8 bps from Monday's levels.

GE Capital's notes due 2011 were trading at 119 bps bid, 16 bps tighter than Monday's level, and well in from the 212 bps over level at which the financial arm of the giant industrial conglomerate had priced $3.5 billion of the bonds on Dec. 4 as one tranche from a four-part deal.

Citigroup Inc.'s 2.875% notes due 2011 were bid at 122 bps, 16 bps tighter on the session, and about 66 bps in from the 188.4 bps level at which the New York-based bank had priced $3.75 billion of the bonds on Dec. 2 as part of a three-part deal.

Another gainer among the recently priced financials was Regions Bank's 3.25% notes due 2011. The company had priced $1.75 billion of the bonds as part of a four-tranche offering on Dec. 8, at 202.75 bps over; on Tuesday, they were seen at 130 bps over, 21 bps tighter than Monday's levels.

However, the company's $1 billion of new 2.75% notes due 2010 widened out by 49 bps on the session from Monday's levels, to 122 bps over; however, they remained well in from the 182.75 bps level at which they had priced in that Dec. 8 deal.

That latter bond seemed to be the exception to the rule; other financials seen doing better included Key Bank NA's 3.20% notes due 2012 at 133 bps over, versus the 211 bps over level at which the company had priced $1 billion of the bonds on Dec. 10.

Also in that sector, Wells Fargo & Co. Inc.'s 3.98% notes due 2010 tightened to 326 bps over, a 27 bps pickup over Monday's levels.

Goldman goes up

A market source saw Goldman Sachs's most active issue, the 6.15% notes due 2018, gyrating around after the company reported a large fiscal fourth-quarter loss, although the loss was not as great as some in the financial community had feared.

The bonds had been quoted late in the session on Monday trading around 520 bps over. During Tuesday's trading, they narrowed to the tight level of the session at about 480 bps over. However, later in the afternoon, the bonds came down from that peak level and the spread widened back out to 540 bps. But by the end of the day, they were trading back up at that same tight level of 480 bps over.

Goldman's NYSE-traded shares meantime shot up by $9.54, or 14.35%, to an even $76, on volume of 44 million, about 1½ times the norm.

The bonds and shares rose even though Goldman reported a net loss of $2.29 billion, or $4.97 per share, in the fiscal fourth quarter ended Nov. 28. It was Goldman's first quarterly loss since it went public in 1999, and was attributable chiefly to the $3.6 billion net loss racked up by its principal investments division, which takes stakes in other companies, including the $631 million it lost on its investment in Industrial and Commercial Bank of China. Goldman also lost $2 billion on other corporate investments and $961 million from real estate investments.

All told, its trading and principal investments unit, which includes its fixed income, equities and principal investments divisions, generated negative revenue of $4.36 billion during the quarter, which involves the company having to reverse some previously recognized revenue because its value has since declined.

Some $3.4 billion of that negative revenue came from Goldman's fixed income division, from losses on investments including corporate debt, private and public equities and trading in credit products.

Although that was more red ink than the roughly $3.75 per share that Wall Street was looking for, some analysts had predicted it would be even worse than that - so investors were able to shake it off.

The New York-based investment bank - which converted to a commercial bank recently to allow it to tap federal bank-recovery funds - posted a full-year profit of $2.04 billion, or $4.47 per share, in contrast to many financial sector peers who posted huge losses for the year tied to the troubled housing and credit markets. Goldman had remained profitable through the first three quarters of the year, before its luck finally ran out in the latest quarter.

Bank, brokerage CDS costs mixed

In the credit-default swaps market, a trader saw the cost of protecting holders of Goldman Sachs debt against a default event steady at 365 bps bid, 375 bps offered.

Among other sector credits, he said that brokerage debt-protection costs were 5 bps wider to 15 bps tighter, while big-bang CDS costs tightened anywhere from 2 bps to 5 bps.

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