African Development Bank prices as market remains sloppy; bank, brokerage CDS weak

By Andrea Heisinger and Paul Deckelman

Omaha, Feb. 15 - Friday ended on the same quiet note as much of the rest of the week, with the African Development Bank and Toyota Motor Credit Corp. comprising new issuance.

In the investment-grade secondary market Friday, advancing issues led decliners by about a five-to-four ratio, while overall market activity, reflected in dollar volumes, was slightly less than half of Thursday's levels, with the market having an abbreviated session ahead of the three-day Presidents Day holiday break.

With not too much going on generally, Bear Stearns' bonds tightened on takeover rumors - all of them unsubstantiated - including market buzz that China's Citic might decide to up its stake in the brokerage.

That also helped limit the widening seen its debt-protection costs, which was at the low end of surge higher in bank and brokerage credit-default swap spreads in response to a slew of bad-news items, including predictions of further big-bank writedowns and reported trouble in a hedge fund linked to Citigroup.

Back among the cash bonds, the recently priced Credit Suisse (New York branch) 10-year bonds were seen gyrating around at mostly tighter levels.

ADB brings $500 million

African Development Bank priced $500 million 2.75% three-year notes at 99.84 with a spread of Treasuries plus 93 basis points.

BNP Paribas and Morgan Stanley & Co. Inc. ran the books.

Toyota priced $150 million one-year floating-rate notes at par to yield prime rate minus 279 basis points.

The agent was Banc of America Securities LLC.

"It was a sloppy close to a sloppy week," a market source said of Friday.

Spreads widened, but that didn't have a lot to do with a lack of issuers, the source said.

"There just aren't a lot of issuers on the sidelines right now," he said.

"I wouldn't confuse the lack of issuers with the state of the market. There just aren't any out there right now."

Duke sees opening for preferreds

One of the week's issuers, Duke Realty Corp., was pleased with how its $275 million issue of preferred shares went Thursday.

The issue was well received by the market and while originally marketed at $150 million, demand drove the final offering to $275 million, said assistant vice president of investor relations Randy Henry.

He explained why the company entered the market now.

"[The] market for preferreds was accepting of [the] offering, but no guarantee that it would remain that way in the future as other issuers enter market," Henry wrote in an e-mail.

Duke went with the preferred shares because it was the most efficient capital available to the company at this time, he said.

"[The] long-term debt market is not available and common stock is too expensive at current stock prices," Henry said.

Other issuers for the week were a mix of financials and industrials that totaled more than $12 billion.

Those over the $1 billion mark included Procter & Gamble International Funding SCA, Deutsche Bank Contingent Capital Trust III, Credit Suisse and the Province of Ontario.

Smaller issuers included PNC Financial Services, HSBC Finance Corp., The Goldman Sachs Group, Inc., RPM International Inc., Nabors Industries Inc. and General Electric Capital Corp.

It's likely that the coming week, only four days long because of the Presidents Day market close, will be similar in tone and volume to this past week, sources said.

"I think next week will be quieter than this week," a source said. "Actually, it will probably be quiet for a while. There are a couple of issuers on the calendar, but nothing major."

February so far has shaped up as market sources predicted, which was a slow down following a high-volume January.

Things likely won't pick up again for at least a couple of weeks, sources said.

Buzz boost for Bear Stearns

Back in the secondary, a trader said that the market overall was "pretty quiet" - but saw Bear Stearns' 7.25% notes due 2018 open Friday's dealings at a spread over Treasuries of 400 basis points bid, 385 bps offered; by the session close, he said, they had tightened to 385 bps bid.

"It was all rumor related," he said.

Besides the bonds, Bear's New York Stock Exchange-traded shares rose $4.32%, or 5.51%, to close at $82.79 on volume of 20 million shares, almost triple the norm.

Bear got a boost from unsubstantiated takeover rumors; one story making the rounds said that the company - the most vulnerable major brokerage name, hardest hit by the credit crunch - would likely get a $98 per share cash takeover offer over the weekend. The story apparently had its genesis in Friday's greater-than average activity in expiring options on the company's shares. About 60,000 call options and 39,000 put options changed hands Friday, around twice the usual activity level.

Other market participants talked about a possible increase by Citic, China's largest brokerage company, of its stake in Bear Stearns. There were reports that the two companies had resumed talks, which had concluded last fall when Citic and Bear Stearns had agreed to swap stakes, giving Citic a 9.9% stake. There seemed to be little impact from a report Friday afternoon on CNBC shooting down the whole Citic story. The business network attributed its scoop to sources "familiar with the situation."

Citi story has no impact

A trader said Citigroup's paper "seems pretty much unaffected" by the news that the U.S. banking giant had suspended investor withdrawals from a $500 million credit hedge fund to give that fund a chance to "stabilize."

Credit Suisse bonds trade better

Credit Suisse (New York branch)'s new 5.75% notes due 2018 were seen by a trader having firmed smartly from the 212.5 bps spread at which the bonds had priced earlier in the week. He saw the bonds get as good as 203 bid, 202 offered before widening back out a little to 208 bps bid, 204 bps offered.

By the end of the session, the bonds had moved back to a 204 bps bid level.

Bank, broker CDS costs wider

A trader said that the banks and brokerages in general had all "gotten hit on all of this bad news" emanating from the financial sector, including the Citi story and analysts predicting a bigger writedown for UBS, as well as the continued troubles of the monoline bond insurance industry.

He saw the banks 4 bps to 16 bps wider on the day, while the brokers were 5 bps to 15 bps wider.

He saw Wachovia Bank, especially, underperforming, its CDS cost having to ballooned 16 bps on the day to 176 bps bid, 186 bps offered, while Washington Mutual's was 15 bps wider at 410 bps 430 bps.

Among the brokerage names, Morgan Stanley was "the stepchild," 15 bps wider at 180 bps bid, 190 bps offered.

He called Bear Stearns "a winner," as it only widened out to 265 bps bid, 275 bps offered, a 5 bps widening.

The trader also saw the monoline insurers' paper unchanged despite the latest bad news in the sector, with Fidelity Guaranty Insurance Co.'s financial strength ratings cut Thursday by Moody's Investors Service. Larger rival MBIA Inc.'s AAA bonds' debt-protection costs stayed at 465 bps bid, 485 bps offered, while Ambac Financial Group Inc.'s CDS costs hung in around 445 bps bid, 485 bps offered.

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