Dow, Corning, Kinder Morgan, Smiths Group sell bonds; Corning firm, Kinder Morgan widens

By Andrea Heisinger and Paul Deckelman

New York, May 7 - The new deal market remained packed, as expected, Thursday with sales from Dow Chemical Co., Corning Inc., Kinder Morgan Energy Partners, LP and Smiths Group plc.

As the government announced results of the stress tests on the country's 19 largest banks, two bank holding companies said they would issue bonds.

Morgan Stanley is planning a $3 billion note sale that is not backed by the Federal Deposit Insurance Corp., while U.S. Bancorp is expected to price a smaller one that is government-guaranteed.

This comes as the amount of capital needed by the largest banks totals $75 billion, according to the federal government.

Investor interest in non-financial issues remains high, syndicate sources said, as even small issues such as the one from Corning clocked in at nearly 10 times oversubscribed.

In the secondary sphere on Thursday, a market source said the CDX Series 12 North American high-grade index was slightly wider, out by 1 basis point at a mid bid-asked spread level of 146 bps.

Advancing issues led decliners, although their lead narrowed to a less-than seven-to-six ratio.

Overall market activity, reflected in dollar volumes, fell nearly 4% from Wednesday's levels.

Spreads in general were seen tighter, in line with higher Treasury yields; for instance, the yield on the benchmark 10-year issue moved out by 18 bps to 3.33%.

With the busy new-issue calendar continuing, a key area of secondary focus was in aftermarket trading of newly priced bonds, including the Corning and Kinder Morgan Energy Partners deals. The former was slightly firmer after it broke - but the latter deal was heard to have done badly, widening markedly.

Dow prices $6 billion

Dow Chemical sold $6 billion senior unsecured notes in three tranches late Thursday, two days after the company disclosed it was contemplating a bond issue.

It has already completed a sale of common stock shares.

The $1.75 billion of five-year notes priced at a spread of Treasuries plus 550 bps. Price talk was in the 575 bps area, with the spread coming in well below.

The $3.25 billion of 10-year notes sold at a spread of Treasuries plus 525 bps, also markedly below talk.

A third tranche of $1 billion in 30-year notes was priced at a spread of Treasuries plus 512.5 bps, again much tighter than talk.

Price guidance for both the 10-year and 30-year notes was the 550 bps area.

Full terms were not available at press time due to the lateness of pricing.

The sizes of the tranches were fiddled with after being announced mid-day, a source close to the deal said, although the total amount stayed the same. The five-year notes were upsized from $1.5 billion, while the 10-year tranche was cut from $3.75 billion. The tranche of 30-year notes was increased from $750 million.

The deal was closely watched by syndicate desks, both because of its Baa3/BBB- ratings and its size.

The net proceeds of the notes offering are expected to be used to repay a portion of borrowings under Dow's term loan and for refinancings, renewals, replacements, and refundings of outstanding indebtedness. Borrowings under the term loan were incurred to pay a portion of the purchase price for its acquisition of Rohm and Haas Co.

According to a press release Thursday, it is intended that the Haas Trusts and the Paulson & Co. funds will sell, at the company's discretion, another $625 million at par plus accrued dividends of perpetual preferred stock, Series B to Dow for a certain amount of senior notes which will also be offered in the company's senior notes offering.

Excluding an over-allotment option, the Haas Trusts and the Paulson funds are each selling $454.4 million of their shares of Dow's perpetual preferred stock to Dow for the shares being sold by them in the offering.

Bookrunners for the bond deal were Banc of America Securities, Citigroup Global Markets, HSBC Securities and Morgan Stanley & Co.

The specialty materials company is based in Midland, Mich.

Kinder Morgan offers $1 billion

Houston-based pipeline Kinder Morgan Energy Partners priced $1 billion of senior notes in two tranches Thursday afternoon.

The $300 million of 5.625% notes due 2015 priced at Treasuries plus 350 bps, which was at the tight end of guidance in the 350 to 362.5 bps range.

The $700 million of 6.85% notes due 2020 sold at Treasuries plus 362.5 bps. This was also at the tight end of price talk of the 375 bps area, with a margin of plus or minus 12.5 bps.

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

Corning sells small deal

Corning sold $350 million of unsecured notes in two tranches early Thursday.

The $250 million of 6.625% 10-year notes priced at Treasuries plus 337.5 bps, while the $100 million of 7% 15-year notes priced at 384.9 bps over Treasuries.

Price talk for both tranches was in the "mid-to-high 300s," an informed source said.

He added that the deal books totaled $3 billion - nearly 10 times oversubscribed.

J.P. Morgan Securities and Deutsche Bank Securities were tapped as bookrunners by the diversified technology company based in Corning, N.Y.

"We are delighted that the financial markets have improved and allowed us to issue new debt at favorable interest rates," James B. Flaws, vice chairman and chief financial officer of Corning, said in a press release. "The rate on the new debt is similar to rates on existing debt that Corning will be repaying over the next few years."

Smiths Group prices

Smiths Group sold $500 million of notes in two tranches, a market source said.

The $250 million of 6.05% five-year notes priced at Treasuries plus 395 bps, while the $250 million of 7.2% 10-year notes priced at Treasuries plus 395 bps.

Full terms were not available at press time.

The transaction came to market under Rule 144A.

Bookrunners were Barclays Capital, J.P. Morgan Securities and Morgan Stanley & Co.

The engineering company is based in London.

Morgan Stanley plans note sale

Morgan Stanley announced late Thursday plans to issue about $3 billion in senior notes that are not backed by the Federal Deposit Insurance Corp., according to a press release.

A market source said the sale is in three tranches including five-year and 10-year notes.

The financial-services company is also selling $2 billion in common shares.

Morgan Stanley is bookrunner for the bond offering.

On Thursday it was revealed in the government's stress tests that Morgan Stanley came up $1.8 billion short in capital.

U.S. Bancorp plans sale

U.S. Bancorp announced its plans for a $1.084 billion sale of three-year notes backed by the FDIC, a market source said late Thursday.

The pricing timeline was unknown, the source said.

The notes (Aaa/AAA/AAA) are non-callable.

Bookrunners are Goldman Sachs & Co. and Morgan Stanley & Co.

Market unrattled by stress tests

The release of the government's stress tests of the country's 19 largest banks Thursday afternoon failed to have any solid impact on the investment-grade bond market, sources said.

This was mostly expected. As sources said Wednesday, much of the worst information - such as Bank of America Corp. needing nearly $34 billion in capital - had already been leaked.

By late in the day, when the news that the 19 banks need $75 billion in capital, which was less than expected, several deals were already completed and more were announced ready for pricing.

"It doesn't really seem to have done much," a source said soon after this announcement.

A market source said he didn't think the lateness of the Dow Chemical pricing had anything to do with the stress test results' release.

"I think it was kind of a tough deal," he said. "It just took a while." It was sold two days after being announced, with the division of the tranches tinkered with throughout the day.

As shown by the books for the Corning sale, interest in non-financial deals remains high.

"For new issues? Definitely," a syndicate source responded when asked about investor interest.

Whether or not the momentum of Wednesday and Thursday will continue Friday is up in the air. Two financial deals have been announced, but there may also be more industrials lying around.

"It's hard to tell," a source said. "It's a good time to come in, but since it's Friday they may [wait]."

Corning issue comes in a little

When the new Corning bonds were freed for secondary dealings, traders said that the specialty glass maker's two tranches of bonds were slightly firmer.

A trader saw the $250 million issue of 6.625% notes due 2019 at a spread over comparable Treasury issues of 335 bps bid, 325 bps offered - not much changed from the 337.5 bps level at which the bonds had priced earlier in the session.

The other part of that deal - Corning's $100 million of 7% notes due 2024 - was being quoted at an offered level of 365 bps, with no bid level. The bonds had priced at 384.9.

New Kinder Morgan issue heads south

The trader saw Houston-based energy operator Kinder Morgan's new two-part issue actually widen out from the levels at which those bonds had been priced.

He saw its $300 million of 5.625% notes due 2015 trade at 360 bps bid, 355 bps offered - versus 350 bps at which the issue had priced.

The other portion of that deal - the $700 million of 6.85% notes due 2020 - likewise was seen having widened out, to 375 bps bid, 360 bps offered, from 362.5 bps when the deal priced

Xerox bonds widen out

Also seen widening out was the new Xerox Corp. 8¼% notes due 2014. The Norwalk, Conn.-based copier and office machines giant's new issue moved out to 580 bps bid, 563 bps offered, versus the level of 565 bps bid, 560 bps offered to which they had traded on Wednesday.

However, the latest levels were still well in from the 625 bps over level at which the company had priced its $750 million of bonds - upsized from the original $500 million - earlier in Wednesday's session.

DTE deal continues to firm

On the other hand, a trader saw DTE Energy Corp.'s new 7.625% notes due 2014 having come in to 482 bps bid, 478 bps offered. That was considerably tighter than the 514 bps bid, 510 bps offered levels to which those bonds had firmed after their pricing on Wednesday.

The Detroit-based electric utility priced its $300 million issue, which had been upsized from $250 million earlier, at 561.1bps over.

Husky bonds higher

Meanwhile, Husky Energy Inc.'s two-part offering was seen by a trader as having continued to tighten. He saw the Calgary, Ata.-based independent energy exploration and development company's $750 million of 5.90% notes due 2014 offered at 342 bps over, with no bid-side seen. That was in from Wednesday's aftermarket levels of 370 bps bid, 365 bps offered, and it was in still further from the 387.5 bps spread where the paper had priced.

The other part of that deal, the $750 million of 7.25% notes due 2019, tightened to 367 bps bid, 362 bps offered , versus 375 bps bid, 370 bps offered on Wednesday. Those bonds had in turn initially tightened from the 412.5 bps level at which they had priced.

Bank, broker CDS costs tighten

In the credit-default swaps market, a trader said that CDS costs to protect holders of big-bank paper against a possible default were anywhere from 5 bps to 10 bps tighter on the day, reflecting investor belief that the banks are less likely to default.

He also saw CDS costs for the bonds of former investment banks - which have turned into commercial banks - at those same 5-10 bps tighter levels.

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