EOG, Peco Energy, South Carolina E&G, Wisconsin Electric price, tone up on bailout news; Morgan Stanley active

By Andrea Heisinger and Paul Deckelman

New York, Sept. 25 - Issuance in the investment-grade bond market continued to pick up steam Thursday as the tone improved, leading EOG Resources, Inc., South Carolina Electric & Gas Co., Wisconsin Electric Power Co., and Peco Energy Co. to price deals.

The issues were announced before Congress said it had an outline of the financial bailout bill drafted. This was the news many issuers and investors had been waiting for, and could encourage those on the fence to come into the market, sources said.

"We could actually have some deals on a Friday," one source said.

In the investment-grade secondary market Thursday, advancing issues trailed decliners by a seven-to-five margin. Overall market activity, reflected in dollar volumes, eased 2% from Wednesday's pace.

Spreads in general were seen tighter, in line with generally higher Treasury yields; for instance, the yield on the benchmark 10-year issue rose by 6 basis points to 3.87%.

Morgan Stanley's bonds remained the most actively traded issues, even though there was no fresh news out on the New York-based financial services company, currently in the process of transforming itself into a commercial bank as opposed to its longtime status as an investment bank.

EOG prices two tranches

Oil and natural gas company EOG Resources priced $750 million in two tranches Thursday, making it the largest deal of the day.

The $400 million of 6.125% five-year notes priced at 99.961 to yield 6.134% with a spread of Treasuries plus 310 basis points.

This was at the tight end of price talk in the 312.5 bps area, a source said.

The $350 million of 6.875% 10-year notes priced at 99.465 to yield 6.950% with a spread of Treasuries plus 310 bps.

This tranche also was talked at the 312.5 bps area.

J.P. Morgan Securities Inc., Banc of America Securities LLC, and Citigroup Global Markets Inc. ran the books.

It was a straightforward deal, a source said, with no increase to the size from talk to pricing.

Utilities dominate

South Carolina Electric & Gas was one of the utilities to come to the market Thursday.

The company priced an upsized $300 million of 6.5% 10-year first mortgage bonds at 99.713 to yield 6.538% with a spread of Treasuries plus 265 bps.

The size was increased from $250 million.

The issue priced at the tight end of talk in the 270 bps area, a source said.

Banc of America, Credit Suisse Securities, and Wachovia Capital Markets were bookrunners.

Another utility issuing was Wisconsin Electric Power.

The subsidiary of Wisconsin Energy Corp. priced $300 million of 6% debentures due 2014.

They came at 99.806 to yield 6.042% with a spread of Treasuries plus 300 bps.

Bookrunners were Citigroup and Wachovia.

The third $300 million utility issue for the day came from Peco Energy.

The subsidiary of Exelon Corp. priced its 5.6% five-year first and refunding mortgage bonds at 99.72 to yield 5.664% with a spread of Treasuries plus 262.5 bps.

Banc of America, Morgan Stanley, and Scotia Capital ran the books.

GE talks Q4 debt plan

General Electric Co. is not planning on issuing any long-term debt in the fourth quarter, according to a conference call Thursday.

The company did the call and accompanying press release as an update in light of current economic and market conditions.

During the call, chairman and CEO Jeff Immelt said one of the company's priorities is a strong commercial paper program, and that the company is planning a reduction in this program in the fourth quarter as it has other funding sources.

Although the company has only issued $70 billion of a planned $80 billion in long-term debt in 2008, Immelt said it does not need to issue the remainder.

He also said GE's AAA credit rating is a "significantly competitive advantage for us."

Citi plans floater issue

Citigroup announced Thursday it plans an issue of floating-rate notes. The pricing status of the issue was not available at press time.

The notes will be priced at 90 instead of the usual par.

Placement agent is Citigroup.

Tone up on bailout plan

The tone of the investment-grade bond market was on the uptick by the end of the day as news came out that a bailout plan was closer to being finished.

After an overnight draft session, some said a deal was close to being finalized, with an outline completed. Members of the Republican Party refuted this, saying a draft was not yet complete. This was prior to a late-afternoon meeting among the president, Congressional leadership, and the two presidential candidates.

By late afternoon, the bill had been agreed upon, with expectations that it would be passed in the next few days.

Among the provisions was approval of the $700 billion figure, which would be paid in installments.

"I think this was the news everyone was waiting for," a source said.

Sources said they had been talking to several potential issuers Thursday. They were encouraged by the number of successful issues in the last couple of days, along with the positive bailout plan news.

"This was the window people have been waiting for," a source said.

Although it's unlikely there will be any large, multi-tranche issues until things have settled further, more small issues are expected.

"We'll probably see a lot more of what we saw today, like smaller issues from utilities and industrials," a source said.

One market source noted that it's also unlikely there will be any lower-rated issuers coming into the market unless they absolutely need capital.

"They would have to pay substantial premiums right now, but there are some out there in the backlog," he said.

Morgan Stanley dominates activity

A trader said that Morgan Stanley's bonds were "a little weaker" for most of the day Thursday but ended the session pretty much unchanged.

He said that overhanging Morgan Stanley and everything else was "the ebb and flow" of the discussions and news reports coming out of Washington, where Congressional conferees attempted to hammer out a compromise financial bailout package. They were trying to draft a measure that would give the Bush administration the powers it seeks to be able to buy up toxic loans to get them off bank balance sheets and restore confidence in the financial sector, while at the same time acknowledging Congressional demands for limits on the pay of executives of troubled companies needing federal help, relief for hard-pressed homeowners and provision of a governmental equity stake in any companies it helps.

"It was selling off " when it looked like nothing new was happening on the federal front, or at least "drifting down, but when they said they felt they had definitely gotten something done in principle, things in general started doing better."

He said the bonds "were not screaming tighter - but it feels like it was doing better. Each time something good came out about that, paper traded up a bit. It's not screaming tighter, it's not like everything is hunky-dory," but it was better.

On the other hand, a market source saw Morgan Stanley's 3.875% notes due 2009 - the most actively traded bond of any during the day, with over $200 million changing hands - down more than 2 points, ending at just above 92, although it was up from low prints around 88.

The 6.75% notes due 2011, which saw about $100 million trade, eased by ½ point to 79 bid. But the source saw Morgan Stanley's 5.05% notes due 2011 were quoted at the 74 level, down about 5 points on the day.

Goldman goes up

Elsewhere, Goldman Sachs Group Inc.'s bonds - which had firmed smartly Wednesday on the news that celebrated investment guru Warren Buffett likes Goldman so much that he's willing to put $5 billion of his Berkshire Hathaway's money into it - continued to firm, although on more restrained volume.

Goldman's 5.25% notes due 2013 rose almost a point to just under the 88 level, in busy trading.

GE Capital eases on lower forecast

General Electric Capital Corp.'s bonds were seen easier as its blue-chip industrial bellwether corporate parent, General Electric Co., cut its earnings forecast for the year on Thursday - and specifically noted the hard times that GE Capital is going through due to the volatile financial markets.

A market source saw GE Capital's 5.625 notes due 2017 having widened out to about 330 bps. Its 4.625% notes due 2009 were also seen wider, to about 325 bps. Its 5.875% notes due 2012 pushed out to about the 365 bps mark.

GE expects its profit for the year to fall about 10%, to between $19.5 billion and $21 billion, or $1.95 to $2.10 per share. It had previously projected earnings of $22 billion to $23 billion, or $2.20 to $2.30 per share.

GE's chairman and chief executive officer, Jeff Immelt, warned analysts on a conference call that at least in the short-run, "we expect to see higher losses and loss provisions and lower gains," for GE Capital, whose operations account for about half of the parent's revenues.

CDS costs seen mixed

In the credit-default swaps market, a trader said, the costs of protecting bank and broker-dealer paper against a default were mixed, with some wider and some tighter. Wachovia Corp.'s CDS cost was out 10 bps to 710 bps bid, 850 bps offered.

The upfront cost for troubled thrift Washington Mutual Inc.'s debt-protection ballooned out by about 5 percentage points, to 67% to 72%, plus 500 bps annually.

Among the brokerage names, Morgan Stanley's debt-protection costs were 50 bps higher at 780 bps bid, 830 bps offered. Merrill Lynch was unchanged at 320 bps bid, 340 bps offered. But Goldman Sachs was out 5 bps tighter at 365 bps bid, 385 bps offered.

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