Fiserv, Wachovia, JBIC price as premiums stay high; little liquidity in trading; Kraft better, Penney down

By Andrea Heisinger and Paul Deckelman

Omaha, Nov. 15 - New issues continued to trickle into the market Thursday, including deals from Fiserv, Inc., Wachovia Bank NA and Japan Bank for International Cooperation.

Still, there were some positive signs in the secondary market Thursday, with advancing issues outnumbering decliners by about a three-to-two ratio.

But dominating the tone, a trader said, was the poor liquidity in the secondary. He saw little movement in the new UnitedHealth Group, Inc. bonds which had priced on Wednesday, and while he heard Kraft Foods' paper being quoted tighter on a major asset sale by the foods giant, he saw little real dealings. JC Penney Co., Inc. bonds were wider after the big store chain reported disappointing numbers and issued downside guidance.

Credit-default swaps spreads on debt-protection contracts linked to brokerage bonds such as those of Bear Stearns and Lehman Brothers were wider on the day.

Weak primary conditions

Back in the primary, one market source said: "It's bad out there."

He added that things have gone downhill since Tuesday.

That was when Fiserv launched its issue. By the time of its pricing on Thursday, it was downsized to $1.75 billion in two tranches from $2 billion.

The $1.25 billion in 6.125% five-year notes priced at 99.953 to yield 6.136% at a spread of Treasuries plus 237 basis points.

The $500 million in 6.8% 10-year notes priced at 99.671 to yield 6.846% at a spread of Treasuries plus 262.5 bps.

Bookrunners were Credit Suisse, Wachovia Securities and J.P. Morgan.

Price talk on the 10-year tranche was considerably tighter than where it priced, a market source said. He said talk was 215 to 220 bps compared to the 262.5 bps it came at.

This issue provided another example of high new issue premiums, a market source said, adding that they are currently sitting at about 20 bps.

At these levels, they are back to about what they were during the summer's credit crisis, the source said.

Also Thursday, Japan Bank priced $1 billion in 4.375% five-year guaranteed bonds at 99.455 to yield 4.498% at a spread of Treasuries plus 73.5 bps.

Citigroup, Deutsche Bank and Morgan Stanley were bookrunners.

Wachovia priced $1 billion of 6% 10-year subordinated bank notes at 99.203 to yield 6.108% at a spread of Treasuries plus 195 bps. Wachovia Securities was bookrunner.

Citi plans trust preferreds

Citigroup Capital XX announced an upcoming issue of enhanced trust preferred securities, with Citi acting as bookrunner.

They will be priced at par of $25.

The issue could price Friday or not until next week, a source close to the deal said. It was intended to be a "several day deal," he said.

The write-down news of $2.7 billion from Barclays did not do much more damage to an already shaky tone for investment grade, a source said.

"We could be finished through Thanksgiving," a market source said.

It's possible there could be a window Monday for new issues, but not guaranteed, the source said.

"The secondary market is quiet too," a source said. "Everyone's just waiting for new issues to price."

UnitedHealth bonds hang around issue

A trader said of the new UnitedHealth bonds that he "saw [the long tranche] offered at issue spread, without a bid out there," offered at 200 bps, versus the 205 bps bid spread at which the bonds had priced.

He saw the 5-year piece bid at 173 bps, versus their 170 bps issue level, while the 10-year bonds were still at the same 180 bps level at which they had priced.

"My guess is that everything comes cheaper, because there's very little liquidity out there right now." He said that things are "weaker than weak."

He went on to say that generally, "the liquidity has just dried up. If you try to get a bid on anything, the Street is absolutely no help - and accounts are dying to get bids on stuff. There's just nothing out there. It's not too fun right now."

Kraft tighter on Post deal

Kraft's bonds were being quoted better on the news that the big food-processing company will sell its Post Cereals business to private-label producer Ralcorp in a $2.6 billion deal which includes Ralcorp's assumption of $950 million of debt.

The trader said the quotes on Kraft "supposedly tightened in by 3 to 5 bps - but I sure didn't see it. The quote runs that I see say that bonds are trading better - but they're not."

Kraft's 6% notes due 2013 were seen by another source as having tightened to about the 152 bps level, a pickup of 8 bps on the session, although earlier in the day they were seen as tight as the 146 bps neighborhood. There were several large-block trades in the bonds at better levels, the source indicated.

The trader noted the pricing of the new Fiserv deal - pointing out that "it was supposed to be a $2 billion to $3 billion deal, and they couldn't get it done. They were expected to price it in the 225 bps area." The reality of the downsized deal was that the 5-year piece came at 237 bps and the 10-years at 262 bps.

"So to get the deal done, they couldn't do enough of it" versus their original plans, "and they had to do it wider."

Penney bonds widen on results

And the trader saw JC Penney's bonds widening out after the Plano, Tex.-based department store operator reported its first profit decline in three quarters and slashed an earnings forecast. He quoted the 6 3/8% bonds due 2036 at 265 bps over, a 20 bps widening on the news.

Penney, the third-largest U.S. department-store operator, said that third-quarter earnings shrank 9.1% to $261 million, or $1.17 a share, from $287 million, or $1.26, a year ago, and it cautioned that lower sales will cut profit in the current quarter. It forecast a decline in same-store sales, the key retailing industry metric, "in the low single digits" on a percentage basis.

Broker CDS spreads widen

Another trader saw brokerage debt-protection costs widening out from prior levels, quoting the cost of a CDS contract hedging against a possible default on Bear Stearns paper at 147 bps bid, 157 bps offered, versus 140 bps bid, 150 bps offered at the opening and 130 bps bid, 140 bps offered late Wednesday.

Other brokerage names were seen wider, but only by several basis points, with Lehman Brothers at 124 bps bid, 134 bps offered, versus 125 bps bid, 135 bps offered at the opening and 118 bps bid, 128 bps offered late Wednesday; Merrill Lynch was seen having widened to 120 bps bid, 130 bps offered versus 115 bps bid, 125 bps offered at the opening and 113 bps bid, 123 bps offered late Wednesday, while Morgan Stanley's CDS price moved out to 97 bps bid, 107 bps offered - actually several basis points tighter than its opening at 100 bps bid, 110 bps offered, but wider than its late-Wednesday level at 95 bps bid, 105 bps offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.