Time Warner Cable prices $5 billion; mixed volume forecast for coming days

By Andrea Heisinger and Paul Deckelman

Omaha, June 16 - A large issue from Time Warner Cable Inc. led off the week Monday, although its appearance in the market wasn't a surprise to many.

European Investment Bank also priced an issue.

The company priced $5 billion in three tranches, and one source said it wasn't much of a secret in the investment-grade world.

"I think everyone knew it was coming in, but it was just a matter of whether it was today or tomorrow," he said.

The company is partially using the proceeds from the sale to finance a special dividend in conjunction with its spin off from Time Warner Inc.

In the investment-grade secondary market Monday, advancing issues trailed decliners by a nearly seven-to six ratio, while overall market activity, reflected in dollar volumes, rose nearly 14% from Friday's pace.

Spreads in general were seen a bit tighter, as Treasury yields moved higher; the yield on the benchmark 10-year note, for instance, rose by 2 basis points to 4.27%.

Time Warner Cable at tight end

Time Warner Cable's issue went very well, a source said, which was reflected in the pricing of the tranches.

The $1.5 billion of 6.2% five-year notes priced at 99.788 to yield 6.249% with a spread of Treasuries plus 250 bps.

The $2 billion tranche of 6.75% 10-year notes priced at 99.917 to yield 6.761% with a spread of Treasuries plus 250 bps.

The $1.5 billion tranche of 7.3% 30-year debentures priced at 99.706 to yield 7.324% with a spread of Treasuries plus 255 bps.

The five and 10-year tranches both priced at the tight end of talk of 250 to 255 bps, while the 30-year tranche came at the tight end of talk of 255 to 260 bps.

Banc of America Securities LLC, BNP Paribas Securities, Morgan Stanley & Co., Inc., RBS Greenwich Capital and Wachovia Capital Markets ran the books.

It was interesting that this issue priced when it did, one source said.

"In the morning credit was unchanged to a touch tighter, but it wasn't clear what way things were going," he said. "It's kind of interesting they would come in against that kind of backdrop. It's been rumored for a while, so no one was really surprised."

EIB sells $3 billion

Time Warner was the "deal of the day," a source said, with the only other thing on people's radar being the EIB issue.

The supranational bank priced $3 billion 4.25% five-year global notes at 99.746 with a spread of Treasuries plus 63.25 bps.

Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc. ran the books.

Outlook for week unsure

There were mixed forecasts on what the coming week's volume would be.

One source said they saw a slow week with one or two deals.

"Yields are high, spreads are wide and everything's already come out," he said. "It's a combination of those three things."

Another source called the week "fairly active," adding "you never know these days what the markets are going to do."

A third source had a healthier forecast, saying starting Tuesday things could pick up.

"Things should be busier starting tomorrow," he said. "Mid-week will see the largest issuance, on Wednesday and Thursday, and things should definitely get interesting. We'll definitely be watching the market."

Golf, Time Warner Cable calm secondary

A trader said that from where he sat, "there wasn't much" going on beyond the new Time Warner Cable deal.

"Between a $5 billion new deal coming and the golf being on" - an exciting televised playoff round at the U.S. Open tournament mesmerized many market participants - "there really wasn't much being said." He had not seen any secondary market dealings in the new Time Warner Cable issue.

Time Warner Cable's established 6.55% notes due 2037 , which fell about 5/8 point in dollar-price terms to just below 92.5, were little changed on a spread versus comparable Treasuries basis, at 288.5 bps, a 2 bps widening from Friday's close.

Lehman hangs in

Lehman Brothers Holdings Inc. posted a fiscal second-quarter loss of $2.87 billion, or $5.14 per share, which contrasted sharply with its year-earlier profit of $1.26 billion, or $2.21 per share. Markdowns on risky assets caused revenue to hit negative $668 million, versus last year's $5.51 billion.

But despite the ocean of red ink at the Wall Street brokerage, the company's shares rebounded from their early lows and the trader said its bonds also "were a little better, if anything," investors apparently reassured by the tone that Lehman chief executive officer Richard Fuld struck during his conference call with analysts following the release of the numbers.

Lehman's 6 7/8% bonds due 2037, one of the day's most actively traded issues, ended higher by more than a point in Monday's trading at a dollar-price of 87.105. On a spread basis, the bonds tightened to about 376 bps over going home, versus the nearly 390 bps spread at the end of Friday's activity. Its 7½% notes due 2038 tightened to about the same level, also in very active dealings.

Another market source saw Lehman's 6.50% notes due 2017 narrow 6 or 7 bps on the day to close around 339 bps.

A trader at another desk said that Lehman's credit-default swap cost - the expense of protecting a holder of Lehman paper against a possible default - tightened by 5 bps from Friday, a sign of renewed investor confidence in the company, to end at 242 bps bid, 252 bps offered.

Among other financials, General Electric Capital Corp.'s 4.80% notes due 2013 were seen having come in by around 15 bps to the 150 bps level. However, Wells Fargo's 7.55% notes due 2010 widened out 10 bps to the 160 bps level.

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