AIG, Southern Co., TCF price; AIG price weighs on primary, secondary; Lehman wider on analyst prediction

By Andrea Heisinger

New York, Aug. 13 - New issues from American International Group, Inc., Southern Co., TCF Capital I and Toyota Motor Credit Corp. priced Wednesday as the investment-grade market weakened further.

A decline in sales at retail stores combined with other headlines dragged down bonds, sources said.

The secondary market saw a lot of action, with mixed movements on new deals or on earnings announcements.

Weakness tied to the AIG issue's wide price was also prevalent in the secondary.

This didn't stop the flow of trading, however.

"We're pretty slammed today," one source said.

Meanwhile in the secondary Lehman Brothers Holdings Inc.'s longer bonds were the biggest loser after a stock analyst forecast a third quarter loss for the investment bank.

AIG weak pricing unnverves primary

The new issue from AIG troubled some in the primary market, as well as investors.

It wasn't the size that did it, but the spread it came at, which was considered high for the company's ratings.

The insurance and financial company priced $3.25 billion of 8.25% 10-year notes (Aa3/AA-/AA-) at par to yield 8.25% with a spread of 432.8 bps.

The issue priced in the Rule 144A market.

"It was clear that they priced it like a junk-rated issue, to the yield," a market source said. "It's definitely troubling since they're low-A rated and came at that spread."

The issue priced in line with talk of a yield in the 8.25% area.

Credit Suisse Securities and Morgan Stanley & Co., Inc. ran the books.

Southern Co. sells floaters

Also pricing Wednesday was an issue from electricity company Southern Co.

The company priced $600 million two-year senior floating-rate notes at par to yield three-month Libor plus 70 bps.

J.P. Morgan Securities Inc. and Lehman Brothers Inc. were bookrunners.

TCF upsizes

TCF Capital priced an upsized $100 million, or 4 million, 10.75% 60-year capital securities at par of $25. The issue was announced Monday, with an initial size of $50 million, a source said.

It priced in line with price whispers of 10.75%, he said.

The issue has an overallotment option of $15 million securities.

RBC Capital Markets ran the books.

Toyota Motor Credit priced a small deal Wednesday.

The financing entity priced $75 million two-year floaters at par to yield three-month Libor plus 10 bps.

Barclays Capital Inc. and Banc of America Securities LLC were bookrunners.

Ingersoll-Rand announces terms of late-day issue

Terms of the $1.6 billion issue from industrial manufacturer Ingersoll-Rand Global Holding Co. Ltd. were announced Wednesday after the issue priced late in the day Tuesday.

The $250 million of two-year floating-rate notes priced at par to yield three-month Libor plus 150 bps.

The $600 million of 6% five-year notes priced at 99.957 to yield 6.010% with a spread of Treasuries plus 287.5 bps. This was at the wide end of price talk of 275 to 287.5 bps.

The $750 million of 6.875% 10-year notes priced at 99.857 to yield 6.895% with a spread of Treasuries plus 300 bps.

This tranche also priced at the wide end of talk of 287.5 bps to 300 bps.

Credit Suisse Securities, Goldman Sachs & Co. and J.P. Morgan Securities Inc. were bookrunners.

JPMorgan Chase announces preferreds

JPMorgan announced Wednesday it plans to price an issue of non-cumulative preferred stock at $25 a share, according to a Securities and Exchange Commission filing.

It's likely the shares will price Thursday, a source close to the deal said.

The perpetual shares will be non-callable for five years.

Size is talked at the default amount of $300 million, with price talk of 8.75%, a source said.

J.P. Morgan Securities is bookrunner.

Primary weaker on retail data, earnings

A combination of factors weakened the primary market Wednesday, a source said.

"It was just OK out there today," he said. "It wasn't the strongest open, and then we had AIG not do very well."

Negative economic and earnings headlines also affected the market tone.

The Commerce Department reported that July's retail sales were the weakest in five months, which went along with one of the day's earnings announcements.

Macy's Inc. released its second quarter earnings, which eased to $73 million from $74 million for the same time period the previous year.

Other earnings announcements that were below expectations came from farm machinery company Deere & Co. and Dutch financial company ING Groep NV.

Deere reported its third quarter earnings missed analysts projections due to higher raw material costs, and warned that fourth quarter earnings would also be lower.

ING had a 25% drop in earnings for the second quarter, due to smaller gains on investments, the company said.

Still, the AIG deal was what most in the primary market were talking about.

"It was definitely not the strongest deal," a source said. "Obviously they needed to get that size done, and were telling investors [beforehand] that they were going to take some size out of the market."

With a weak day overall and not the strongest market close, it's unlikely there will be a lot in the market Thursday, sources said.

"I doubt we'll have anything since things weren't the strongest today," one source said. "We could be about done for the week."

AIG tightens after wide pricing

The new 10-year notes from AIG "priced pretty wide," a source said, and they tightened slightly after pricing.

They were seen trading at 425 bps after pricing at 432.8 bps over Treasuries.

"Those bonds left everything feeling weaker," a secondary source said.

Tuesday's bonds from Ingersoll-Rand were slightly wider to unchanged from pricing levels.

The 6% five-year notes were seen widening to 290 bps from pricing at 287.5 bps, a source said.

The 6.875% 10-year notes were also slightly wider at 301 bps bid, 299 bps offered, from pricing at 300 bps.

Lehman day's biggest mover on analyst predictions

Lehman Brothers Inc. was seen as the day's biggest mover in both the widening and tightening categories.

This came after Deutsche Bank analyst Michael Mayo lowered his third-quarter earnings projection to a loss.

Lehman's 6.875% 10-year notes were seen widening more than 25 bps

On the other end of the spectrum, Lehman's 4.8% notes due 2014 were seen tightening more than 15 bps.

This move could perhaps be explained by the company's announcement it will sell some of its real estate assets.

Overall, the day's decliners edged out the advancers, with 1,269 declining versus 1,196 advancing.

Issues traded Wednesday totaled 2,798, with 58 seen unchanged.

Bank, broker CDS weaken

Bank CDS costs were 1 to 10 bps wider, a trader said. Wachovia Corp. was seen about 10 bps wider at 270 bps bid, 280 bps offered.

Lehman Brothers was also 10 bps wider at 290 bps bid, 305 bps offered.

Broker CDS spreads were about 5 to 10 bps wider, the trader said.

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