Philips, PSE&G, Vectren, Scana, Wells Fargo price; issuers pricing ahead of wider spreads; Ambac weak

By Andrea Heisinger and Paul Deckelman

Omaha, March 5 - The pace of new deals continued its steady pace Wednesday, with Royal Philips Electronics NV, Public Service Electric & Gas Co., Vectren Utility Holdings, Inc., Scana Corp., Wells Fargo Capital XII and Toyota Motor Capital Corp. entering the market.

In the investment-grade secondary market Wednesday, declining issues led advancers by a seven-to-five ratio, while overall market activity, reflected in dollar volumes, was little changed from Tuesday's levels.

"Generally speaking, I saw things a little weaker," a trader said, "but not substantially." He said that the news that Ambac Financial Group Inc. plans to sell $1.5 billion of new shares and convertibles to shore up its balance sheet "feels like it weakened things a bit."

Ambac's credit-default swaps spreads widened - a sign of investor displeasure with the lack of a bailout plan for the company.

Philips brings $6 billion

Philips was the largest issuer of the day, pricing $6 billion of notes in four tranches. The issue was upsized from three tranches, with a fourth of floating-rate notes added.

Terms for the issue were not available at press time.

Bookrunners were Citigroup Global Markets Inc. and J.P. Morgan Securities Inc.

The issue went very well and was about two times oversubscribed, a source close to the deal said.

Price talk was issued earlier in the day and was Treasuries plus 225 basis points area for the five-year tranche, 225 to 230 bps for the 10-year tranche and 245 to 250 bps for the 30-year tranche, a source said.

Wells Fargo sees 'momentum'

Wells Fargo priced $1.4 billion, or 56 million, 7.875% 60-year enhanced trust preferred securities at par of $25.

The size will likely be increased by $210 million through exercise of the greenshoe, a market source said.

Citigroup, Merrill Lynch, Pierce, Fenner & Smith Inc. and Morgan Stanley & Co. Inc. were bookrunners.

The issue got a "very reasonable" distribution, source said.

"I'm not surprised, really," he said. "They had a lot of momentum going in."

Scana sells MTNs

Electric and natural gas provider Scana priced $250 million 6.25% medium-term notes due 2020 at 99.652 to yield 6.291% with a spread of Treasuries plus 260 bps.

Agents were Banc of America Securities LLC, BB&T Capital Markets and UBS Investment Bank.

Vectren priced $125 million 6.25% senior monthly notes due 2039 via Edward D. Jones & Co., LP.

Another utility, Public Service Electric & Gas, priced $300 million two-year floating-rate first and refunding mortgage bonds at par to yield three-month Libor plus 87.5 bps.

The bonds are non-callable for six months.

Barclays Capital Inc. was bookrunner.

Toyota priced $250 million medium-term floaters due 2009 at par to yield prime minus 273 bps.

Agent was HSBC Securities.

Kansas City set to price

An upcoming issue of 10-year notes from Kansas City Power & Light Co. was announced.

It will likely price Thursday, a source close to the issue said.

Banc of America and J.P. Morgan are bookrunners.

Volume strong despite volatility, worries

Wednesday's tone hadn't changed much from Tuesday when negativity bogged down the latter half of the day, sending bank spreads around 30 bps wider.

So far, volume for the week has remained healthy despite some volatility.

"I don't know what things add up to so far, but there have been a lot of deals," a market source said. "There haven't been a lot of large ones, but a decent amount of smaller ones."

Many of the issuers are getting in now in case things get worse down the line, the source said.

"It confirms they think spreads will widen and they're trying to get in before that happens," he said. "They're willing to pay a little more now, because they think they'll have to pay more down the road."

Equities were in the negative territory Wednesday, sources said, but it didn't seem to have affected the investment grade market much.

"I was a little surprised at the amount of things in the market today," a source said. "People knew Philips was today's business, and it was a big one. Other than that, things were surprising."

Thursday should see more issuance, although the amount should start to taper off.

"The week's probably going to start winding down," a source said. "We've seen a lot of more off-the-run names this week, which is good. I could have one, possibly two, names for tomorrow."

Other sources were mixed about issuance for the remainder of the week.

One source said he didn't have anything on his calendar for Thursday.

Another said there will be more names in the market at least tomorrow.

"I think tomorrow we'll have more to talk about," one source said. "We're not done for the week, and I don't think things are going to shut down any time soon."

Ambac spreads widen out

Debt-protection costs for Ambac's AAA rated insurance unit rose 10 bps to 530 bps after the announcement of the financing plan, reflecting market disappointment with the idea. There had been speculation that Ambc would be the recipient of as much as $3 billion as part of a bailout plan by major banks for the troubled bond insurer, but so far it appears that there will be no bailout.

Financials seen weaker

Financial names appeared weaker in the wake of the disappointing Ambac news.

Goldman Sachs' 5.875% notes due 2017 were seen to have slid some 25 basis points to 275 bps. JP Morgan Chase's 6% notes due 2018 lost about 20 bps on the session to end around 201 bps over.

Citigroup's 6.875% notes due 2038 were about 5 bps wider on the day at 280 bps.

UBS cautiously bullish

In a research piece Wednesday, analysts from UBS said that despite the turmoil of the past months, "we think that corporate credit markets are attractively valued at present and that investors are overly pessimistic regarding the fundamental credit outlook."

The investment bank is keeping its "moderate overweight" rating on investment-grade bonds, believing that even though "I-G bonds posted a meager positive performance compared to government bonds since the beginning of the year," the high-grade paper remains "attractively valued compared to government bonds."

The analysts opined that they "expect to see some stabilization in IG spreads. Therefore we retain a moderate overweight allocation."

The analysts also said that generally speaking, "corporate credit spreads already reflect expectations of a sharp deterioration in credit quality and increase in risk premium. While uncertainties remain high, we think that the correction in corporate credit spreads [from the near-all-time lows seen last summer before the onset of the subprime mortgage meltdown and resulting credit crunch] is overdone, and that indiscriminate selling has gone too far."

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