Tyco Electronics, Barclays, Glitnir, Marathon bring big issues on $7 billion-plus day; financials strong

By Andrea Heisinger and Paul Deckelman

Omaha, Sept. 20 - It was another prosperous day in investment-grade new deals, with more than $7 billion in new issues.

The largest came from Tyco Electronics SA, Barclays plc, Glitnir Banki HF and Marathon Oil Corp.

Swedish Export Credit Corp. released terms of a $1.25 billion sale of 4.5% three-year notes that priced at 99.726 to yield 4.599% with a spread of Treasuries plus 54 bps.

Smaller issues came from Avery Dennison Corp. and Liberty Property LP.

The investment-grade secondary market was seen mixed on Thursday, with declining issues actually outpacing advancers by about a 3-to-2 margin, a market source indicated - but the all-important financial sector remained strong, given a big boost by much better-than-anticipated quarterly results from Goldman Sachs Group Inc.

That good news from Goldman more than offset earlier bad news from Bear Stearns Cos. Inc., which reported a sharp drop in quarterly profits from a year ago. But even Bear's credit default swap spreads tightened - along with other names in the sector. Both tranches of Lehman Brothers Holdings Inc.'s new mega-deal, which priced on Wednesday amidst a flood of new paper, particularly financial, were seen to have tightened markedly from the spreads at which they had been priced.

Tyco Electronics sells $2.05 billion

Tyco Electronics priced a $2.05 billion three-tranche issue of five, 10 and 30-year notes. The $800 million in 6% five-year notes have a price of 99.956 to yield 6.01%, with a spread of Treasuries plus 165 basis points.

The $750 million in 6.55% 10-year notes have a price of 99.665, with a spread of Treasuries plus 190 bps while the $500 million in 7.125% 30-year notes have a price of 99.544 to yield 7.162% with a spread of Treasuries plus 220 bps.

The Tyco issue was interesting, a market source said, because they priced a lot wider than the company's bonds had in the past.

Tyco Electronics had previously tried to bring a $1.5 billion offering in late July but pulled the transaction in the face of adverse market conditions.

Barclays offers $1.25 billion hybrids

Barclays priced $1.25 billion of hybrid perpetual securities at par to yield 7.434%, with a spread of Treasuries plus 280 bps. The securities have a coupon of 7.434% for 10 years then turn into floaters with a rate of three-month Libor plus 317 bps.

This was one of the first hybrid deals in the market since the credit meltdown, a source said.

The $1 billion issue from Glitnir Banki was upsized from $500 million. The 6.375% notes have a price of 99.776 to yield 6.428% with a spread of Treasuries plus 210 bps.

Marathon Oil priced $1.5 billion of notes in two tranches. The $750 million of 6% 10-year notes priced at 99.332 to yield 6.09% with a spread of Treasuries plus 140 bps. The $750 million of 6.60% 30-year notes priced at 99.804 to yield 6.615% with a spread of Treasuries plus 165 bps.

The $250 million issue of 6.625% 10-year notes from Avery Dennison priced at 99.529 to yield 6.696% with a spread of Treasuries plus 200 bps.

Liberty Property upsized its issue from $250 million to $300 million of 6.625% 10-year notes priced at 99.385 to yield 6.71% with a spread of Treasuries plus 207 bps.

RBS, HCC for Friday

Previously announced issues from Royal Bank of Scotland Group plc and HCC Insurance Holdings Inc. will price Friday, an informed source said.

RBS is set to price dollar preferred shares while HCC is offering $300 million in 10-year senior notes.

Bank of America announced it would sell an issue of preferred stock, but a source said he didn't know when it was pricing.

"I think that's about the extent of the issuance for the week," a market source said.

It will not be a large week of new issues, he said, predicting about $20 billion total.

"It was very good today, definitely," one trader said. "There were probably $7 billion in new issues."

The current stability in the market will keep this trend going, one source said.

"I think it's going to continue like this," he said. "The market's pretty benign right now with the 10-year trading at 166 [basis points]."

Spreads tighten

A trader said "I don't know why, or where, or when, or what the reality is, but everything was tighter today," despite the big fall in earnings reported by Bear Stearns, whose profits slid 61% from year-earlier levels. "I guess they were comfortable with Goldman's earnings," which jumped an eye-popping 79% from a year ago. "These were enough to keep things tighter."

He noted especially that the two-part Lehman Brothers deal, which priced late Wednesday, had tightened smartly, with the new 6.20% medium-term notes due 2014 coming in to about 175 basis points off Treasuries, from 190 bps at issue. Meanwhile, the new Lehman 7% notes due 2027, which had priced at a spread of 220 bps, were seen trading around on Thursday at about 200 bps over, a 20 bps pickup. "So they have tightened up significantly."

That spread-tightening was actually a two-step process; after having priced on Wednesday, the 20-years quickly tightened to 213 bps, and then resumed tightening in Thursday's dealings. The seven-year piece likewise initially firmed to 185 bps, and then tightened yet another 10 bps Thursday.

However, while Lehman's new bonds were sizzling, another market source indicated that some of the company's established bonds, notably its 6.5% notes due 2017 and 6.875% notes due 2037, were a little easier Thursday as the market absorbed the more than $3 billion of new Lehman paper.

Goldman good news offsets bad-news Bear

Bear Stearns and Goldman Sachs became the third and fourth major investment banks to report earnings this week - they followed Lehman Brothers on Tuesday and Morgan Stanley on Wednesday - and Goldman's good news apparently overcame the former's bad.

Goldman reported third-quarter net of $2.85 billion, or $6.13 per share - well above the $1.59 billion, or $3.26 per share, which the world's biggest investment bank earned in the year-ago period. The numbers blew right through Wall Street's expectations of profits in the $4.37 per share area.

Observers said that Goldman's size, and its geographic and product diversity allowed the company to ride through the turmoil which struck the credit markets earlier in the year as a result of the meltdown of the subprime mortgage lending industry. But the major factor seemed to have been Goldman's shrewd bet that mortgage-backed securities would go south - the firm hedged against such a drop by going short against them, a strategy which it said "more than offset" what it called "significant" losses on some bonds.

The smaller Bear Stearns, on the other hand, much more dependent on fixed-income activities than Goldman, was hurt badly by the bond market reversals, particularly as several Bear-affiliated hedge funds that had invested in mortgage-backed securities ran into trouble. The Number-Five investment bank's quarterly earnings fell to $171.3 million, or $1.16 per share - well down from $4.38 million, or $3.02 per share, that the company earned a year earlier. Its numbers came in well short of the roughly $1.78 per share that Wall Street had been expecting.

Bear CDS continue to narrow

Despite the bad numbers, a trader said that "even Bear Stearns" continued to enjoy lower debt-protection cost, a sign of increased investor confidence in the company.

He pointed out that the cost of protecting against a possible event of default via a CDS contract had come in to 86/91 bps by Thursday afternoon, versus 90/95 bps on Wednesday.

That tightening was in line with a generalized trend of CDS spread tightening seen in the financial names. Lehman's debt protection cost narrowed to 77/82 bps from 83/88 bps on Wednesday, while Merrill Lynch & Co.'s fell to 44/49 bps from 48/53 bps. Morgan Stanley's swap cost was steady at 41/46 bps.

The major factor behind the decline in the cost of protecting banking and brokerage debt, besides the good news from Goldman and from Lehman, which beat expectations even as its earnings fell, was the Federal Reserve's unexpectedly large and pro-active 50 bps cut in its key federal funds rate, which the central bank undertook to calm the recently jittery financial markets and signal its hands-on interest in maintaining adequate liquidity

Since that move Tuesday, Lehman's CDS costs have fallen some 40% - they stood at a bloated 125 bps before the Fed announcement - with similar gains seen in the other sector names as well. The cost of hedging Goldman's debt via a CDS contract has come in by 38% on the week, to around 39 bps.

Kohl's CDS widen

Apart from the financial names, credit protection costs rose for Kohl's Corp. - a sign of lessened investor confidence in the credit - after the Wisconsin-based retailer announced plans to use debt financing to repurchase $2.5 billion in stock over the next three years, causing Standard & Poor's and Fitch Ratings to cut their debt ratings on the company, while Moody's Investors Service said it would put Kohl's under review for a possible downgrade.

The cost of hedging against a default on Kohl's debt was seen up 4 bps to 42 bps.

S&P cut Kohl's corporate credit and unsecured debt one notch to BBB+ with a stable outlook, while Fitch also cut Kohl's debt to BBB+ with a stable outlook, a two-notch downgrade from its previous A rating.

Moody's said it may cut Kohl's one notch from its present A3, pending its review of the company's financial strategy.

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