Primary lull allows catch up, earnings impact unclear in dry market; Toledo Edison gains more

By Andrea Heisinger and Paul Deckelman

New York, April 22 - More earnings reports from companies and banks - some good, some bad - led to a continued drought in the primary high-grade bond market Wednesday.

The remainder of the week promises to be equally devoid of new issues, market sources said, although there may be "a couple," one source said.

Stanford University announced an upcoming issue of taxable revenue bonds, although a specific size or other information was not immediately available.

In the secondary sphere on Wednesday, a market source said the CDX Series 12 North American high-grade index tightened slightly, moving in 2 basis points to a mid bid-asked spread level of 186 bps.

Advancing issues regained their lead over decliners, although they ended up topping them by only a relatively narrow margin.

Overall market activity, reflected in dollar volumes, was about the same as levels seen on Tuesday.

Spreads in general were seen tighter, in line with higher Treasury yields; for instance, the yield on the benchmark 10-year government rose 4 bps to 2.94%.

The new Toledo Edison Co. secured bonds were seen continuing to firm from both the spread over comparable Treasuries at which they priced on Tuesday and from the somewhat tighter level at which they were trading later that session.

GE Capital gives FDIC deal terms

General Electric Capital Corp. released terms for a small sale of floating-rate bonds backed by the Federal Deposit Insurance Corp. that priced Monday.

The $600 million sale of three-year floaters priced at par to yield three-month Libor plus 15 bps.

Goldman Sachs & Co. and Morgan Stanley & Co. ran the books.

Stanford plans bond issue

Stanford University is planning a taxable revenue bond issue, according to press releases from both the school and Fitch Ratings.

The benchmark-sized sale, which Fitch says will be up to $1.2 billion, will price via a negotiated sale when market conditions allow.

The Palo Alto, Calif.-based institution is using proceeds to refinance up to $200 million of taxable commercial paper and for other corporate needs.

Lull welcome break for some

The break in new issuance in previous weeks, and for the remainder of the month, has given some syndicate desks time to get caught up from the hectic months before.

After being asked if the slowdown was expected to continue into the coming week and the end of April, a source said "I wouldn't be surprised if that was the case."

He cited continued earnings announcements and the coming unveiling of bank stress test results by the government as reasons for the delay in new deals.

"Everyone's waiting to see what happens," the source said.

Investor interest in high-grade issues is hard to peg at the moment, a source said, as deals are few and far between.

Any impact would be more evident in the secondary market, they said, adding that there isn't much out there to monitor in trading.

It was unclear whether there was any impact from the day's earnings announcements - particularly those from Morgan Stanley and Wells Fargo & Co.

Morgan Stanley stood out among large financial names by reporting a loss that was worse than analyst expectations.

According to a press release from the company, it lost $1.77 billion in the first quarter. This is compared to the profit a year ago of $1.4 billion.

Revenue was lower than expected, which according to the release, was due to improvements in debt-related credit spreads and an industry-wide decline in the commercial real estate market. The figure was 62% lower than a year ago.

Meanwhile Wells Fargo reported a record profit of $3.05 billion for the quarter, according to a press release.

Part of these earnings was attributed to the acquisition of rival bank Wachovia Corp. which brought in 41% of revenue for the quarter.

Toledo Edison bonds electrify investors

With the new-deal arena falling silent on Wednesday, investors turned some attention to Tuesday's lone new offering. Toledo Edison's 7.25% senior secured notes due 2020 were seen by a trader having tightened to 400 bps bid, 395 bps offered.

That was well in from the 437.5 bps over level at which the Ohio-based utility company priced its $300 million of bonds on Tuesday.

Those bonds had also firmed when they broke later Tuesday, coming in to about 425 bps bid, 410 bps offered.

Statoil issue stays strong

Also among recently priced issues, Statoil Hydro ASA's 5.25% notes due 2019 were being quoted by a market source trading at a spread of just over 200 bps over. That was in significantly from the 245 bps level at which the Norwegian energy company priced its $1.5 billion of bonds last Thursday, as part of a $2 billion two-part mega-deal. An active $29 million of the bonds changed hands.

The other part of that offering, the $500 million of 3.875% notes due 2014, which priced at 220 bps over, were not seen among the actively traded issues on Wednesday.

Tough times for Telephone bonds

A market source saw AT&T Inc.'s 4.95% notes due 2013 having widened out nearly 30 bps on the session, to 240 bps over, having apparently derived little benefit from the Dallas-based communications giant's

first-quarter results, which included a smaller-than-expected drop in quarterly profit on improved margins for its wireless service, helped by sales of the new iPhone, and strong growth for its video and high-speed internet service.

Financials seen mixed

Financial issues were mixed, even with Goldman Sachs Group Inc.'s 5.30% notes due 2012 seen as much as 60 bps tighter on the day at the 250 bps level. Wells Fargo & Co. Inc.'s 4.95% notes due 2013 were quoted some 30 bps wider at 450 bps over, even as the latter bank posted strong quarterly results.

A trader watching the credit-default swaps market saw the costs of insuring bank and brokerage bonds against a possible default widening anywhere from 5 bps to 15 bps - with Wells Fargo's debt-protection cost 13 bps wider on the day at 255 bps bid, 265 bps offered.

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