Tone improves slightly, brings Abbott, Northern Trust, General Electric to market

By Andrea Heisinger and Paul Deckelman

Omaha, Nov. 6 - The tone improved Tuesday as issuers started to creep back to the market, including Abbott Laboratories, Northern Trust Corp. and General Electric Capital Corp.

It wasn't that conditions improved over Monday, but that they didn't get any worse, one source said.

"We didn't see any new issues Monday because everybody was assessing and licking their wounds after Friday's spread widening by like 25 [basis] points," the source said. "It was a day of assessment."

In the secondary market, declining issues led advancers by about a seven-to-five margin.

Abbott Laboratories' new bonds were seen to have traded slightly tighter from their respective issue levels, although a trader said that it was no huge move - "nothing drastic" was how he put it. However, the pharmaceuticals company's existing bonds were seen having widened out on news of the three-part mega-deal.

Elsewhere, Citigroup's bonds, which had widened out Monday on the news that the banking giant will be taking additional writedowns of as much as $11 billion when it reports numbers for the current quarter, were seen not much changed.

And brokerage debt-protection costs - which had widened out Monday initially in knee-jerk reaction to the Citigroup news, along with other bank and brokerage issues, only to come in from those early peaks later - were seen continuing that tightening trend Tuesday.

Abbott upsizes

One source said it was a good call by the lead managers to bring the Abbott Labs new issue into the market, although the 10-year tranche had around a 20 bps new issue premium.

The $3.5 billion issue was in three tranches, upsized from two tranches.

The $1 billion in 5.15% five-year notes priced at 99.961 to yield 5.158% at a spread of Treasuries plus 117 bps.

The $1.5 billion tranche of 5.6% 10-year notes priced at 99.699 to yield 5.639% at a spread of Treasuries plus 127 bps.

The $1 billion tranche of 6.15% 30-year notes priced at 99.6 to yield 6.179% at a spread of Treasuries plus 150 bps.

Bookrunners were Morgan Stanley, BNP Paribas, Citigroup and Wachovia.

GE sells hybrids

General Electric priced $2.5 billion of 60-year hybrids at Treasuries plus 200 bps. There's a coupon of 6.375% until Nov. 15, 2017, when it switches to a floating rate of three-month Libor plus 228.9 bps. The notes priced at par.

Goldman Sachs, J.P. Morgan, Lehman Brothers and Morgan Stanley were bookrunners.

Northern Trust priced $400 million of notes in two tranches.

The $200 million tranche of 5.2% five-year notes priced at 99.809 to yield 5.244% at a spread of Treasuries plus 125 bps.

The $200 million tranche of 5.85% notes priced at 99.963 to yield 5.855% at a spread of Treasuries plus 148 bps.

Bookrunners were Goldman Sachs and Merrill Lynch.

Deutsche Bank Capital Funding Trust X announced an issue of non-cumulative trust preferred securities that will price at par of $25. An informed source said the issue did not price Tuesday.

Bookrunners are Deutsche Bank, Citigroup, Merrill Lynch and Wachovia.

China's Country Garden announced initial guidance on its $1.5 billion or greater split-rated bond (Ba1/BBB-) offering in two tranches. The five-year tranche is being talked in the 9% area while the 10-year tranche is in the 9.75% area.

Morgan Stanley and UBS are bookrunners.

More deals expected Wednesday

Spreads were not any tighter Tuesday, but they didn't widen any.

"I think things stabilized," a market source said. "We can expect more people coming into the market tomorrow."

Another source said they were swamped Tuesday after a few days of volatility scared potential issuers away.

"We're more rosy than we were yesterday [Monday], that's for sure," a source said. "I think people see a window and they're going to get in because you don't know if it will get better."

New Abbott bonds tighten slightly

When the new Abbott Labs three-part deal hit the aftermarket, a trader said, the bids "were in maybe one or two basis points from issue" on all of the tranches - "but it wasn't like it was a big move in. I think everyone is very cautious right now, with the heavy calendar" that lies ahead - he estimated that there was some $12 billion of new high-grade debt likely to come out of the industrial, or non-financial, part of the market, "this week alone."

He opined that people were probably keeping their powder dry - waiting to see what's coming out."

The last two days had been fairly quiet, "except for maybe some Street activity, or people just jockeying their books around a little bit.

Older Abbott bonds widen

Abbot's existing 5 7/8% bonds due 2016, meantime, were among the most actively traded names on Tuesday. The trader estimated those bonds trading around the 110 bps area, which he thought was "a bit out of whack," given that the new five-years were priced at 117 bps over, the 10s at 127 bps over and the 30s at 150 bps over. "That might be a short-covering deal as well," he suggested.

Late in the day, the bonds were seen trading at about 111 bps over, at a yield of 5.48%, translating to a loss of more than 1¼ point on a dollar-price basis, a source said, seeing their price in the mid-102 bid area. Earlier in the day, the bonds had traded as low as 101 bps over, before widening out to their closing level.

Overall, the trader said, "today [Tuesday] was very, very quiet."

On Monday, he said, "things had widened out, and Friday things had widened out in the afternoon, and this morning, I think there was some short covering. So bids kind of came back to the market everything firmed up a little in the morning. But it was just some short covering going on. There wasn't anything drastic or major that was dancing around."

Citigroup seen holding steady

A market source said that the Citigroup 6% notes due 2017 were "pretty light on volume," quoting the bonds as yielding around 5.93%, translating to a spread of about 155 or 156 bps over, "just about where they were yesterday [Monday].

"In contrast to the fairly brisk activity seen on Monday, "there was not a whole lot of volume - maybe 10 trades, and [only] half of them were of decent size, not just odd lots."

The source saw the Citigroup 5.30% notes due 2012, "which we had been seeing a lot more volume in," there was perhaps "half the volume" of the 6s. The source saw the bonds trading in size at a yield of about 5.38%, translating to a spread of about 139 bps over, again around Monday's closing levels.

In other financial names, the source saw Morgan Stanley's 5 3/8% notes due 2015 pretty much steady, trading in yield range of around 5.85% to 5.93%, versus a "decent sized" trade Monday at 5.89%, "so, it was a couple of basis points in there, not much of a change," investors apparently unfazed by a warning that Morgan Stanley may be the next big Wall Street firm to post losses on mortgage-related securities; that somber prediction came from David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, who said it might have to write down their value by as much as $6 billion.

Brokerage CDS stabilize as well

Another sign that investors might be looking at potential finance-sector problems a little more calmly came from the credit-default swaps market, where a trader said the CDS debt-protection costs of such names as Morgan Stanley, Bear Stearns, Lehman Brothers and Merrill Lynch were all unchanged to about 5 to 10 bps tighter than Monday's close - which itself was in somewhat from the wider levels seen Monday morning right after the Citigroup news broke.

He saw Bear Stearns' debt-protection costs having come in to 147 bps bid, 157 bps offered, well down from Monday's peak levels of 165 bps bid, 180 bps offered. Lehman's CDS cost was 125 bps bid, 135 bps offered, Merrill's 105 bps bid, 115 bps offered, and Morgan Stanley's 100 bps bid, 108 bps offered.

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