Bank of America adds to FDIC-backed notes, Fed, earnings take toll on issuance; Washington Post, Entergy gain

By Andrea Heisinger and Paul Deckelman

New York, Jan. 28 - Bank of America Corp. added to its issue of floating-rate notes backed by the Federal Deposit Insurance Corp. on Wednesday, in what was about the only glimmer of new deals in the investment-grade primary.

The stop to the flow of new issues can be blamed on more depressing earnings reports and a Federal Reserve meeting, a source said.

In the secondary sphere on Wednesday, a market source said the widely followed CDX Series 11 North American high-grade index was tighter by 7 basis points on the day to a mid bid-asked spread level of 192 bps from 199 bps on Tuesday.

Advancing issues stayed ahead of decliners, by a not-quite nine-to-seven ratio. Overall market activity, reflected in dollar volumes, rose about 8% from the levels seen on Tuesday.

Spreads in general were seen tighter, in line with substantially higher Treasury yields; for instance, the yield on the benchmark 10-year issue rose 14 bps to 2.67%.

Bonds generally were seen firmer, including the newly priced issues for Washington Post Co., Entergy Texas Inc. and Delhaize Group SA/NV.

B of A adds notes

Bank of America added $350 million to an issue of FDIC-backed floaters due 2012 on Wednesday, a day after the original deal was sold.

The notes are priced at par to yield three-month Libor plus 30 bps.

It brings total issuance for the notes to $2.35 billion, including the $2 billion priced Tuesday. The deal's total is now $8.35 billion, also including the $6 billion tranche of fixed-rate notes.

Banc of America Securities LLC ran the books.

B of A gives deal terms

Bank of America released terms for its two-tranche issue of FDIC-backed notes priced Tuesday.

The $6 billion of 2.1% notes due 2012 priced at 99.97 with a spread of Treasuries plus 97.2 bps.

The second tranche was the previously mentioned $2 billion of floating-rate notes, which had $350 million added to it Wednesday.

Banc of America Securities was bookrunner.

Earnings sour day

Several companies released fourth-quarter earnings Wednesday which combined with other factors to curtail new issuance.

In the financial sector, Wells Fargo & Co. posted a $2.55 billion quarterly loss, partly due to absorbing losses in its acquisition of Wachovia.

This loss compares to a profit of $1.36 billion a year ago.

A few other non-financial companies also gave earnings results.

AT&T Inc. saw an earnings decline of nearly 24% from a year ago, missing analyst expectations.

The company remained on the positive side, however, seeing earnings of $2.404 billion. This was down from $3.14 billion a year ago.

Airplane manufacturer Boeing Co. saw an unusual quarterly loss of $56 million, compared to a year-ago profit of $1.03 billion. The company blamed a labor strike for part of the loss.

ConocoPhillips Co. also posted earnings.

When asked whether this further round of weak earnings affected the investment-grade bond market Wednesday, a syndicate source said "Not really. I don't think it really had much impact. Everyone's kind of expecting bad earnings."

Fed halts day

The Federal Reserve meeting Wednesday may have had something to do with companies opting to wait to do new issues, a source said.

The key interest rate was not adjusted at the meeting, although that announcement came in the afternoon, and was likely too late for any company to decide to sell bonds.

"I think people were watching that," a source said. "Just to be safe, I think they probably didn't want to do anything."

He acknowledged the calendar for the week wasn't depleted, and added: "They're just waiting until tomorrow."

"We had so many issues at the beginning [of January] that any backlog is probably cut," the source said.

Another source commented that there "was more action in high yield today."

New issues tighten up

In the secondary market, a trader saw Entergy Texas' 7.125% notes due 2019 trading at a spread over comparable Treasury issues of 462 bps bid, 457 bps offered.

The Beaumont, Tex.-based electric utility company priced $500 million of the bonds at 470 bps on Tuesday

Washington Post's new $400 million of 7.25% notes due 2019 were seen having firmed smartly to the 435 bps level, in sharp contrast to the 475 bps at which the Washington-based media company priced those bonds on Tuesday.

And Delhaize Group's new $300 million of 5.875% notes due 2014, tightened to 415 bps bid, 395 bps over; the Brussels, Belgium-based food retailer's bonds had priced Tuesday at 437.5 bps over.

A trader described his market as "a lift-fest. Bonds are trading all over the place," with spreads tighter by 5 bps to 10 bps pretty much "across the board - especially high quality industrials."

All paper, he said, "is well-bid-for"

Bank paper trades better

In the financial sector, paper was seen stronger, helped by a surge in bank stocks - particularly Wells Fargo & Co., despite the company's swing to a fourth quarter loss of $13.72 billion as it tries to integrate last year's purchase of Wachovia Corp. and sets aside billions of dollars to cover sour mortgages and other bad loans. Analysts, however, said that the San Francisco-based banking giant announcement in its statement that it will not need any more federal money and will not cut its quarterly dividend surprised the skeptics and pushed its shares up 30%. Another big gainer in that sector was the recently beleaguered Citigroup.

With stocks leading the way, the trader said that "all bank paper was tighter today, anywhere from 5 to 10 [bps] on Wells to 20 bps on Citi."

He said "there was a lot of buying out there today, and a lot of 'offers-wanted' listings, whether it was via the electronic system, or just from accounts."

He also noted that "a lot of the same names" kept popping up, "which artificially inflates the price on a number of these different issues."

The trader said that the mid-afternoon statement by the Federal Reserve - that it is ready to buy Treasury debt, should the need arise, although it did not make a firm, formal commitment, "didn't seem to make much of a difference, except in the Treasury market, obviously."

Market shrugs off GE downgrade possibility

The trader also said that the market did not seem particularly alarmed or upset at Moody's Investors' Service's warning that it may cut the vaunted Aaa ratings on General Electric Co. and its General Electric Capital Corp. subsidiary.

The ratings agency put the Fairfield, Conn.-based industrial conglomerate and its financial arm's long-term debt ratings on review for possible downgrade on Tuesday, citing its that "that deepening global economic weakness could further compromise GECS' asset quality, potentially jeopardizing its ability to meet earnings objectives while also maintaining high earnings quality."

He said that "the reality is the [GE] 10-years are trading at 400 [bps] over. You have Johnson & Johnson trading at 95 [bps] over - but they're both Aaa."

He said that a lot of investor nervousness about the possible loss of the Aaa rating "is already built in. It is a Aaa credit - but it doesn't trade like a Aaa."

The GE bonds, he continued "were actually a little better today - they didn't perform as well as some of the other names, but they didn't get weaker."

He said that if Moody's makes good on its threat to drop GE from its Aaa status, "and they do get dropped, there will be some push-back a little bit - but the reality is that most people will say 'we were expecting this, now let's get out of the way and trade the bonds.' It might actually trade higher - because there's a lot of paper that's lower-rated, but that's actually trading higher than these."

Financials' debt-protection costs rise

In the credit-default swaps market, a trader said the cost of protecting holders of big-bank bonds against a possible default tightened by 10 bps to 15 bps.

He saw debt-protection costs for major-brokerage paper 15 bps to 25 bps tighter as well.

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