Coca-Cola Enterprises delays launched $1 billion issue; spreads tighter; 3M, other new deals gain

By Andrea Heisinger and Paul Deckelman

New York, Oct. 28 - A planned issue from Coca-Cola Enterprises Inc. was delayed Tuesday - but not because of market conditions.

It was a negative ratings outlook from Standard & Poor's that caused the pause on a day that was marginally upbeat.

In the investment-grade secondary market Tuesday, advancing issues trailed decliners by a seven-to-six ratio. Overall market activity, reflected in dollar volumes, jumped 54% from Monday's pace.

Spreads in general were seen tighter, in line with sharply higher Treasury yields; for instance, the yield on the benchmark 10-year issue widened out by 16 basis points to 4.18%.

Traders saw 3M Co.'s new three-year bonds trading at solidly tighter levels versus where they had priced, and also saw continued tightening in the new Baker Hughes Inc. and National Rural Utilities Cooperative Finance Corp. bonds.

There was also continued brisk activity in PepsiCo. Inc.'s recently issued bonds, and those of its Bottling Group LLC unit.

Coca-Cola delays pricing

A planned issue from Coca-Cola Enterprises was launched but not priced Tuesday after Standard & Poor's announced it had changed all of the units of Coca-Cola to a negative outlook from stable.

The company launched the $1 billion issue of notes due 2014 at 462.5 basis points.

It's unclear when the issue will price, although a market source said it will likely go Wednesday.

Bookrunners are Banc of America Securities LLC, Citigroup Global Markets Inc., Credit Suisse Securities and Deutsche Bank Securities Inc.

The negative outlook was explained by an S&P analyst in a release.

"While we believe that reduced share repurchases at Coke could restore some financial flexibility to the Coke System, weakening macroeconomic conditions, as well as future acquisitions at Coke, CCE, or CCHBC will likely further weaken Coke System credit measures," stated S&P credit analyst Jean C. Stout.

Primary awaits Fed cut

Market conditions ended on a positive note Tuesday as sources and potential issuers counted on a Federal Reserve rate cut announcement after the conclusion of its two-day meeting Wednesday.

"We're all thinking a 50 basis point cut is going to happen," a source said.

The stock market soared by the close Tuesday on this possibility, but the bond market wasn't quite as buoyed.

"I would say stocks outperformed credit today," a source said. "It wasn't quite as dramatic."

Commenting on the Coca-Cola pricing delay, he said it wasn't likely the company tried to get the deal done before the negative ratings outlook was announced. It was simply bad timing, he said.

"They probably decided it was just too hefty a price. It's not something they really could have really foreseen."

It will be "interesting to see what the bookrunners do with the deal," a source said of the Coca-Cola issue.

"They're going to have to circle back. Assuming that the deal gets done it should be interesting."

Also of interest on Wednesday is the potential rate cut from the Fed. A reduction in the target overnight lending rate to 1%, if the expected 50 bps rate cut happens, will put the borrowing benchmark at its lowest level post-2001, a source said.

Predictions have also been made that more issues will come out later in the week, which was still the popular consensus Tuesday.

"I would agree," a source said. "We still have a substantial backlog at this point."

It's possible that those issues that do come will be sizable, a source said earlier in the week, as companies take larger chunks out of the market in anticipation of a worsening financial situation and the high price of new deals.

3M bonds get better

A trader said that the new 3M bonds were solidly tighter on the session, quoted at a spread over comparable Treasuries of 250 bps bid, 240 bps offered. The Minnesota-based industrial conglomerate priced $800 million of the 4.50% notes due 2011 at a spread of 275 bps over on Monday.

National Rural bonds tighten up

National Rural's 10.375% notes due 2018 were being quoted at 560 bps bid, 540 bps offered. That was well in from the 608.1 bps spread at which $1 billion of those bonds were priced last Thursday, and was even more of an improvement from the 625 bps level at which the bonds had traded on Monday.

Baker Hughes shows gains

Another gainer was Baker Hughes' new two-part deal, which had also come to market last Thursday. Its $500 million of 6.50% notes due 2013, which had priced at 400 bps over and which had pretty much held that level on Monday, tightened slightly to 395 bps bid, 385 bps offered.

Its $750 million of 7.50% notes due 2018, which had also priced at 400 bps over, were seen Monday at 390 bps bid, 380 bps offered, a trader said.

A market source at another desk meantime pegged the Baker Hughes five-year bonds at 380 bps over, and the 10-years as tight as 335 bps over, while also quoting the National Rural bonds as tight as 506 bps over.

Pepsi still popular

The first trader saw PepsiCo's new 7.90% notes due 2018 still actively trading around, at a 315 bps offered level, versus the 420 bps bid level at which the soft-drink and snack foods giant priced $2 billion of the bonds last Tuesday. The bonds had been bid around 317 bps on Monday.

And he saw Bottling Group's 6.95% notes due 2014 offered at 398 bps, still well in from the 435 bps at which the bonds had initially priced as part of a two-part offering with the Pepsi 7.90s

A market source quoted the Pepsi bonds as tight as 280 bps over and the Bottling Group paper at 394 bps over, in very active dealings of more than $60 million apiece.

Morgan Stanley up on VW denial

But an even more active issue was Morgan Stanley's 6.75% notes due 2011, seen by a market source to have firmed some 50 bps on the session to around the 710 bps over mark, on very heavy dealings approaching $100 million.

The bonds tightened after the New York-based bank denied that it had any exposure to German carmaker Volkswagen. Investors had worried that the bank, and sector peer Goldman Sachs, might be caught on the wrong side of a trade involving VW, whose stock saw a short squeeze on the weekend news that fellow German carmaker Porsche Automobile Holding SE had taken a stake of more than 74% in VW after buying much of the stock float.

Goldman's 4.75% notes due 2013 tightened some 45 bps on the day to 660 bps.

Target may be targeted

A trader said that he had seen virtually no activity in Target Corp.'s bonds, even in the wake of the news that Pershing Square Capital Management LP, which owns just under 10% of the discount retailer's shares, plans a presentation Wednesday in New York at which it will outline a possible transaction involving Target, which Pershing Square says "will build long-term value for Target Corp. and all of its stakeholders."

"I haven't seen anything," he said. "It doesn't look like there was a major swing either way."

But another source saw Target's 6% notes due 2018 at about the 500 bps mark, a 35 bps widening on the session.

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