Tone right for financials as Lehman, UBS, Citigroup price issues; Ingersoll Rand up on acquisition

By Andrea Heisinger and Paul Deckelman

Omaha, Dec. 17 - It was a day for financials to come to the market Monday as Citigroup Capital XXI, UBS AG and Lehman Brothers Holdings Inc. priced offerings.

"The tone was right, and the market was expecting a lot of them," a market source said.

Events last week had cleared the air somewhat, he noted: "Earnings were announced by Lehman and there were some write downs announced."

With new financial issues from Lehman Brothers, Citicorp and UBS having come fairly late in the session Monday, secondary market focus moved away - at least temporarily - from its fixation on new-issue paper, instead turning to established names trading on news developments, such as Ingersoll-Rand Co. and Vale Overseas.

Meanwhile credit-default swaps spreads were seen having widened somewhat for major banks and brokerages. However, it moved out sharply fro such recently troubled financial names as savings-and-loan Washington Mutual and bond insurer MBIA.

Overall, advancing issues were about evenly matched decliners and broad market volume was down only slightly from Friday's levels.

UBS offers $3 billion

UBS priced $3 billion in 5.875% 10-year notes at 99.88 to yield 5.891% at a spread of Treasuries plus 175 basis points.

UBS Investment Bank ran the books.

Citigroup priced $3.5 billion in 70-year fixed-to-floating rate capital securities at 99.759 to yield 8.322% at a spread of 30-year Treasuries plus 375 bps.

The issue has a coupon of 8.3% until Dec. 21, 2037, when it steps to three-months Libor plus 417 bps.

Citigroup Global Markets was bookrunner.

Lehman Brothers priced $1.5 billion in 6.75% 10-year notes at 99.926 to yield 6.76% at a spread of Treasuries plus 260 bps.

The issue was expected to price at a slightly wider spread, a market source said.

"I was surprised that it came where it did," he said. "I was expecting about five basis points more."

Lehman Brothers Inc. was bookrunner.

Elsewhere in primary activity, Wachovia Corp. announced it will bring an issue of perpetual preferred stock.

The shares are expected to price Tuesday, with Wachovia Capital Securities LLC as bookrunner.

An upcoming issue is expected from NGPL PipeCo LLC, a subsidiary of natural gas pipeline company Knight Inc.

The company is expected to issue $3 billion of unsecured senior notes.

The issue will be in three tranches of $1.25 billion in five-year notes, $1.25 billion in 10-year notes and $500 million in 30-year notes.

Bookrunners are Banc of America Securities LLC, Lehman Brothers Inc. and Deutsche Bank Securities LLC.

Much of the remaining issuance for the year will be from financials, a source said.

"It's doubtful we'll see any industrial corporate issuance," he said.

"We'll see more financials taking advantage of end of year financing and getting in before the rush at the beginning of next year."

Ingersoll Rand gains on deal

A trader saw Ingersoll Rand's 4¾% notes due 2015 "fairly well bid" following the news that the Bermuda-based industrial conglomerate will buy cooling-systems maker Trane Inc. in a $10.1 billion deal.

He saw the bonds ending at 175 basis points over Treasuries, well in from Friday's levels about 200 bps bid, 190 bps offered on Friday and their opening level at 200 bps bid Monday.

He said it was "one of those cases where the news [of a big acquisition] isn't as bad as the news might be, since it's a cash and stock deal and not something where they're taking out more debt."

Vale jumps around as shipments restart

He saw Vale Overseas' 6 7/8% notes due 2036 "pretty active, as a lot of the metals mining world have been.

"Back in the summer it was Alcoa, then in the fall it was Xstrata and BHP, and now it's CVRD. The sector in general is trading about the same."

A market source saw the bonds of the Brazilian iron-ore producer - the world's largest producer - gyrating around in busy trading, at levels as wide as 255 bps over and as tight as 214 bps over, though for much of the day, they stayed in the same 240 bps area at which they had finished on Friday.

Over the weekend, Vale began restarting shipments of iron ore from one of its ports which had been closed since a Dec. 8 shipping accident at the facility. Loss of the port and inability to find another way of completing the scheduled shipments had forced the company to declare a "force majeure" on some ore shipments to China, causing a shortage of the metal over there.

Energy names gain

The first trader also saw some strength in energy-related names like Weatherford International, which he said was better bid on the coattails of the news that National Oilwell Varco Inc. will acquire Grant Prideco Inc., a maker of oilfield equipment.

Aside from names about which there was specific news, the trader said that "things kind of moved a little sideways," among them recent issues like Kraft Foods. "They would start out a little better-bid, widen a little, then a little better bid, widen a little - but it seemed it was more people working orders rather than positioning things.

Financial CDS spreads widen

A trader said that the cost of insuring the debt of major brokerage companies against a possible default via CDS contracts was about 3 bps to 5 bps higher versus Friday's levels.

He saw Bear Stearns' CDS costs at 175 bps bid, 182 bps offered, Lehman Brothers at 121 bps bid, 128 bps offered, Merrill Lynch at 125 bps bid, 135 bps offered, and Morgan Stanley at 96 bps bid, 103 bps offered.

Among the major banks, he saw issues mostly 1 to 3 bps wider, with Bank of America, JP Morgan and Wells Fargo all 2 bps wider in the 51 bps bid, 56 bps offered neighborhood. Citigroup was seen unchanged at 69 bps bid, 74 bps offered, while Wachovia was3 bps wider at 95 bps bid, 102 bps offered.

Among the thrifts, Washington Mutual's debt-protection cost widened out sharply late in the session. While earlier in the day it was only about was 5 bps wider versus Friday at 335 bps bid, 355 bps offered, by the end of the day, the trader said, it had ballooned out by about 20 bps to 355 bps bid, 375 bps offered.

In agency debt, Freddie Mac and Fannie Mae were each quoted at 33 bps bid/38 bps offered perhaps 1 or 2 bps wider.

Meanwhile, the cost to insure MBIA Inc.'s debt rose in the wake of Moody's Investors Service's announcement Friday that it had affirmed the largest U.S. bond insurer's ratings at AAA, but revised its outlook to negative from stable. It widened out some 30 bps to 467 bps, while the CDS costs on the company's MBIA Insurance Corp. unit rose around 20 basis points to 225 basis points. Moody's said its action "reflects the material stress faced by the firm on its mortgage related exposures and the concrete steps already taken - and likely to be taken - by the company to strengthen its capital position."

MBIA last week announced that it would be getting a capital infusion of up to $1 billion from Warburg Pincus - but also indicated that it expects to establish loss reserves on its mortgage exposures estimated at between $500 and $800 million and expects to have a mark-to-market loss during the 2007 fourth quarter "significantly greater" than that of the third quarter.

"While Moody's believes that the Warburg Pincus investment will address the estimated hard capital shortfall at MBIA, the negative outlook incorporates uncertainty about the performance of the guarantor's portfolio and the ultimate resolution of the firm's total capital plan," the ratings agency said. Analysts were speculating whether the spreads might move even further out if Standard & Poor's and Fitch Ratings follow Moody's lead and lower their outlooks or scrutinize the debt for a possible downgrade.

While MBIA's credit-protection costs were widening, those of smaller rival Ambac Inc. actually tightened by 30 bps to 559 basis points, and the CDS spreads on its insurance arm, Ambac Assurance Corp., came in by 25 bps to 278 bps, as Moody's affirmed the companies' AAA rating and kept their outlook at "stable." Moody's said that Ambac's capital position "is adequate to deal with ... uncertainty, in the context of likely further capital strengthening measures and considering the company's robust franchise in the financial guaranty insurance sector."

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