HP, PECO Energy, Whirlpool price; SunTrust announces preferred issue; traders see active calendar ahead

By Andrea Heisinger and Paul Deckelman

Omaha, Feb. 25 - Issues from Hewlett-Packard Co., PECO Energy Co. and Whirlpool Corp. started off a week amid predictions of steady business.

The issue from HP alone matched or outpaced last week's volume.

In the investment-grade secondary market Monday, declining issues led advancers by a three-to-two ratio, while overall market activity, reflected in dollar volumes, was up around 12% from Friday's level, which was impacted by a major snowstorm which dumped half a foot of snow on New York and other parts of the Northeast.

Major news of the day was the announcement by Standard & Poor's affirming the current ratings of troubled monoline bond insurers MBIA Inc. and Ambac Financial Group Inc., rather than the ratings downgrade which some observers had been expecting. While the ratings agency is continuing its negative outlook for both companies, their removal from CreditWatch for downgrade was seen by the financial markets as a vote of confidence in the companies' ability to raise the capital they need to sustain their ratings, and in the possibility of a bailout by the banks.

Both companies' credit-default swap spreads were seen having tightened markedly on the news - a sign of investor confidence in them, since those CDS spreads move inversely to levels of confidence.

Some of MBIA's and Ambac's debt, recently trading like battered junk bonds at a steep discount to par despite their investment-grade ratings, was seen having moved up Monday.

Elsewhere, major bank and major brokerage CDS spreads tightened a bit amid generally more optimistic feelings about the whole financial sector.

Not much was going on outside the financials; a trader said there had been no aftermarket sightings of the new issues from Whirlpool and Hewlett-Packard.

HP sells $3 billion

Computer and technology company Hewlett-Packard priced $3 billion of global notes in three tranches.

The $750 million floating-rate notes due 2009 priced at par to yield three-month Libor plus 40 basis points.

The $1.5 billion of five-year notes priced at a spread of Treasuries plus 157 bps.

The $750 million 10-year notes priced at a spread of Treasuries plus 162 bps.

Full terms were not available at press time Monday.

Bookrunners were Banc of America Securities LLC, HSBC Securities, J.P. Morgan Securities Inc. and Lehman Brothers Inc.

Market sources said the issue went well.

It was increased from two tranches, according to a 424B5 Securities and Exchange Commission filing.

Whirlpool brings $500 million

Another issue came from Whirlpool, with $500 million in 5.5% five-year notes priced at 99.775 to yield 5.552% with a spread of Treasuries plus 260 bps.

They priced tighter than price talk of Treasuries plus 262.5 bps, a market source said.

Banc of America Securities LLC and RBS Greenwich Capital were bookrunners.

PECO upsizes deal

PECO also priced $500 million, upsized from $400 million.

The 5.35% 10-year first and refunding mortgage bonds priced at 99.8323 to yield 5.372% at a spread of Treasuries plus 147 bps.

The notes priced on the tight end of price talk of 150 bps area, a source close to the deal said.

"It was definitely a good trade," the source said. "It was more than four times oversubscribed. We were able to price it on the tighter end [of talk]."

Books were run by Goldman Sachs & Co., Lehman Brothers and BNY Capital Markets.

SunTrust plans trust preferreds

An upcoming issue was announced for SunTrust Capital IX.

The funding branch of SunTrust Banks, Inc. plans to price 60-year trust preferred securities, according to market sources.

They will be non-callable for five years.

The issue will likely be Wednesday's business, a source close to the deal said.

Morgan Stanley & Co. Inc., Citigroup Global Markets Inc., SunTrust Robinson Humphrey and UBS Investment Bank are bookrunners.

Slim to hefty premiums

An array of new issue premiums were paid by Monday's issuers.

HP was on the low end of the scale. A market source said by his calculations compared to the company's outstanding notes, the five-year tranche carried a 25 bps premium while the 10-year tranche was about 19 to 20 bps.

One source said he was surprised at the size of the issue.

"I don't know what they're funding exactly," he said. "The spreads on a relative basis are pretty attractive. If I was their banker I would have told them to price, too."

The issue from Whirlpool carried a hefty premium, according to a source's calculations.

"I think they probably paid about 40 to 50 basis points, which is a lot," he said.

The day's relatively high volume and successful issues may mean predictions of a busy week could come true.

"There may be some light at the end of the tunnel," a source said. "The stock market's trading OK and things seem pretty stable right now."

"If these [issues] clear the market we could see a number of issuers tomorrow."

Another source commented on Monday's positive tone, and said it's consistent with how the credit markets are doing.

The source also said there's a fairly active calendar for the rest of the week, with a good mix of industrials and financials.

"Supply this week should definitely outpace last week," he said.

Spreads better on Ambac

A trader said that "everything was much tighter on this Ambac news," and he quoted its debt-protection costs for its AAA bonds as having tightened by 10 basis points to 370 bps bid, 390 bps offered, while its beleaguered AA- rated bonds' CDS costs tightened by an eye-popping 190 bps to 670 bps bid, 700 bps offered.

He saw similar movement in MBIA's debt-protection costs, with its AA bonds 150 bps tighter at 695 bps bid, 735 bps offered, and its AAAs 45 bps tighter at 340 bps bid, 360 bps offered.

He also saw major bank debt-protection costs come in by 3 to 5 bps and by 5 to 10 bps for the big brokers' debt.

MBIA, Ambac 'junk' trades up on S&P news

A trader said that "the whole market did a lot better" on the news of S&P's affirming Ambac and MBIA's ratings rather than downgrading them. That pushed MBIA's 14% surplus notes due 2033 up by about 3 points to 96 bid, 97 offered.

Another trader saw those bonds firm to 95 bid, 96 offered from prior levels around 94 bid, 96 offered. "It wasn't a huge move, but it was a little better - call it more stable."

Those bonds, which priced in mid-January at par, have been on a wild roller-coaster ride in the intervening month and a half, falling as low as 70 bid - and being traded off junk bond desks at a number of companies despite their nominally investment-grade rating - and then bouncing off those lows to come back to their present levels in the mid-90s on investor hopes for some kind of a bailout deal from the banks for the bond insurers, as well as good news of the sort that S&P delivered Monday.

The ratings agency, in sparing MBIA from a downgrade, at least for now, indicated its confidence that MBIA could raise the capital it needs to sustain its top-drawer rating, noting the company's sale of some $2.6 billion of debt and equity in the first two months of 2008.

The trader also saw better levels in Ambac's 6.15% bonds due 2037 - another nominally investment-grade instrument that has been reduced to trading like junk, and badly distressed junk at that, by the company's problems. The bonds, which had recently been trading at 45.5 bid, had moved out to a wide 50.5 bid, 56 offered.

And Radian Group's 7¾% notes due 2011 were seen at 85 bid, 86 offered, "not so bad" in price terms, the trader said - "except that's a 13.50% to 13.15% yield - so that's not so great."

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