Oncor Electric, Spectra Energy, Wells Fargo among utility, financials dominating primary

By Andrea Heisinger and Paul Deckelman

New York, Sept. 3 - Several new issues, including deals from Oncor Electric Delivery, Spectra Energy Capital, LLC, Wells Fargo Capital XV, Northern States Power Co. and John Deere Capital Corp., priced Wednesday on the busiest day the investment-grade primary market had seen in recent weeks.

Volume is expected to stay up through the rest of the week, sources said, despite less-than-stellar market tone.

"There's still a backlog that needs to come out," a source said. "I guess it depends on how bad [companies] need money."

In the investment-grade secondary market Wednesday, advancing issues led decliners by a ratio of better than seven to six, while overall market activity, reflected in dollar volumes, jumped by nearly 50% from Tuesday's relatively sedate post-holiday pace.

Spreads in general were seen somewhat wider, in line with lower Treasury yields; for instance, the yield on the benchmark 10-year government note fell 3 basis points to 3.70%.

Utilities dominate new issues

New issues from utility companies made up the bulk of offerings Wednesday.

Spectra Energy priced $500 million of senior notes in two tranches.

The company was one of the first to announce its issue during the day, and a source said there was some strategy behind being the first out of the gate.

"That's what we were going for," he said. "It moved along nicely."

There was no formal price talk for the issue, and its size remained the same from talk to pricing, he said.

The $250 million of 5.9% five-year notes priced at 99.835 to yield 5.938% with a spread of Treasuries plus 300 basis points.

The $250 million of 7.5% 30-year notes priced at 99.819 to yield 7.515% with a spread of Treasuries plus 320 bps.

J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Inc. and Wachovia Capital Markets were bookrunners.

Oncor brings $1.5 billion

Another utility company, Oncor Electric Delivery, priced $1.5 billion of notes in three tranches under Rule 144A.

The $650 million tranche of 5.95% five-year notes priced at 99.866 to yield 5.982% with a spread of Treasuries plus 305 bps.

The $550 million tranche of 6.8% 10-year notes priced at 99.895 to yield 6.815% with a spread of Treasuries plus 312.5 bps.

The $300 million of 7.5% 30-year notes priced at 99.695 to yield 7.526% with a spread of Treasuries plus 320 bps.

All three tranches priced in line with talk, with the two shorter pieces coming in the middle of talk and the long tranche at the tight end.

The five-year notes were talked at the 305 bps area, the 10-year notes at 310 to 315 bps and the 30-year notes at 320 to 325 bps.

Credit Suisse Securities, Goldman Sachs & Co., J.P. Morgan and Lehman Brothers Inc. ran the books.

Northern States sells mortgage bonds

Another utility issue came from Northern States Power.

The company priced $200 million of 6.375% 30-year first-mortgage bonds at 99.235 to yield 6.433% with a spread of Treasuries plus 210 bps.

Bookrunners were Banc of America Securities LLC and Bank of New York Mellon.

Wells Fargo, BB&T price preferreds

Also notable Wednesday were two preferred transactions.

BB&T Capital priced $450 million, or 18 million shares, of 8.95% enhanced trust preferred securities at par of $25.

The securities have an initial maturity of 2063, which can be extended until 2068.

They have a dividend of 8.95% until 2063 and, if they are extended, then have a floating rate of three-month Libor plus 419 bps.

The issue has an over-allotment option of $50 million, or 2 million securities.

Merrill Lynch, BB&T Securities and Morgan Stanley & Co., Inc. were bookrunners.

Also pricing an issue was a funding unit of Wells Fargo.

The bank priced $1.75 billion of hybrid normal preferred purchase securities.

The perpetual securities have a fixed rate of 9.75% until 2013, then a floating rate of three-month Libor plus 583 bps.

They have a liquidation price at par of $1,000.

J.P. Morgan, Citigroup Global Markets Inc. and Goldman Sachs ran the books.

John Deere, IADB price large issues

A funding unit of equipment manufacturer John Deere priced $1.15 billion of notes in two tranches Wednesday.

The $500 million of 4.9% five-year notes priced at Treasuries plus 200 bps, while the $650 million of 5.75% 10-year notes priced at Treasuries plus 210 bps.

Banc of America Securities and J.P. Morgan were bookrunners.

The Inter-American Development Bank priced $1 billion of 4.25% 10-year global notes at 99.863 to yield 4.267% with a spread of Treasuries plus 57 bps.

Bookrunners were Barclays Capital Inc., HSBC Securities and J.P. Morgan Securities.

Coming days seen busy

Companies waiting for others to issue so they could see what pricing levels looked like got their wish Wednesday.

Predictions of a slow start to the week came true, as many simply observed the market Tuesday, not wanting to be the first to jump in.

"We had a couple looking at it yesterday, but no one wanted to make the call to go," a source said. "The market wasn't that great today either."

Despite that, companies needing financing mostly had to wait until September due to vacations and market conditions at the end of August.

Wednesday saw the release of more unsavory economic data, with a dash of positive news.

The Commerce Department reported orders for manufacturing products rose 1.3% in July, which many dismissed because the figures are more than a month old.

Reports from auto makers on August sales were not good, including Toyota reporting a 9.4% decline.

"People are still going to come into the market," a source said. "They're just realizing they have to pay more."

The rest of the week is expected to have decent volume, with one source saying he had one potential issuer looking at Thursday.

"We have an active calendar for the rest of the week," he said.

New bonds arrive too late

A trader said late in the afternoon that although he had seen the new Northern States Power Co. 6.375% bonds due 2038 price, "I didn't see a single market in them."

Other issues, which priced even later in the day than Northern States, such as Oncor Electric, came when the session was too far gone for any meaningful aftermarket dealings.

Another source speculated that there might be "busy trading" in some of those new issues during Thursday's session.

In general, the first trader said "it was quiet in the secondary today. Spreads got a little bit weaker throughout the day."

He said that market players "are anticipating a huge calendar next week - not this week, but the following week - and I think accounts are trying to raise cash right now" by getting out of some positions, so they will have the capital to go into the new deals, when they come.

Financials seen mixed

Among the financial names, Citigroup's 8.40% notes due 2018 were seen having widened out by around 15 or 20 bps to about the 620 bps level, although Merrill Lynch & Co.'s 5.45% notes due 2014 were quoted as having tightened by 30 bps to the 375 bps level and American International Group's 5.375% notes due 2011 were about 15 bps tighter, seen at 390 bps over.

Among the non-financial names, Hewlett-Packard Co.'s 5.25% notes due 2012 firmed by 10 bps to a spread of just over 100 bps.

Consolidated Edison Co. of New York's 5.8% notes due 2018 were quoted at 198 bps over, while Time Warner Cable Inc.'s 7.30% bonds due 2038 were seen around 280 bps over, versus their 255 bps spread when the $1.5 billion of bonds priced back in mid-June.

CDS seen little changed

In the credit-default swaps market, a trader said that debt-protection costs for paper issued by big banks was "plus or minus 1 or 2 [bps] on either side, no real change on the day.

He likewise saw the CDS costs for major brokerage-house paper "totally unchanged."

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