Morgan Stanley prices new issue in wake of write down announcement; financials weak on more bad news

By Andrea Heisinger and Paul Deckelman

Omaha, Dec. 20 - Morgan Stanley priced a new issue Thursday in what may be the last investment-grade offering of the year.

The investment bank priced $2.5 billion in 5.95% global bonds at 99.717 or a spread of Treasuries plus 200 basis points.

Morgan Stanley & Co. Inc. was bookrunner.

The company had an outstanding 10-year bond trading at 170 to 180 bps, a market source said, and estimated the new issue would have a spread of 210 bps.

The source guessed Morgan Stanley's recent write-down announcement would affect the premium it would have to pay.

"After they reported that much of a write down, they're going to have to do at least 25 to 30 bps new issue premium," a market source said.

"I would have thought they would have come out with an issue Wednesday."

Goldman Sachs Group Inc. reopened its 6.75% 30-year notes this week at a spread of Treasuries plus 260 bps. The notes originally priced at 190 bps over Treasuries, meaning the bank paid about 25 bps new issue premium to reopen, the source said.

In the secondary market, traders said that the bad news coming out of the financial sector from Bear Stearns Cos. Inc., which reported a much bigger-than-expected quarterly loss, and bond insurer MBIA, which outlined its huge exposure to troubled loans through its collateralized debt obligations holdings, threw a pall over that important market sector and caused spreads to widen out. However, later in the session, the focus turned to Morgan Stanley's huge new 10-year deal.

No more deals expected

Back on the primary desks, a source said the Morgan Stanley issue is likely the last new one for the year.

"I think this is it," he said.

"There was a possibility Bear [Stearns] could pre-market a deal today and price it overnight, but Morgan's likely the last deal of the year. We're not going to see anything Friday or next week."

ACE Ltd. announced in an 8-K Securities and Exchange Commission filing that it would be issuing $750 million in new debt to finance its acquisition of Combined Insurance Company of America.

The company is being acquired from Aon Corp. in a $2.4 billion deal.

MBIA, Bear hit financials

A trader said that the MBIA story - the insurer disclosed its total exposure to bonds backed by mortgages and CDOs is a whopping $30.61 billion - and the Bear Stearns results - it lost $854 million, or $6.90 a share in the fiscal fourth-quarter ended Nov. 30, including a larger-than-forecast $1.9 billion write-down reflecting the reduced value of subprime mortgage-related securities - "were kind of the drivers on the day. The financials were doing better until MBIA, and then they widened out."

Indeed, he saw the credit-default swaps on its AA- rated paper balloon out to 525 basis points bid, 555 bps offered, while the debt-protection cost for its AAA securities also rose to 295 bps bid, 315 bps offered.

CDS spreads for major banks, he said, were mixed, with Bank of America Corp. and Wachovia Corp. "a little wider" than Wednesday's levels at 47 bps bid, 52 bps offered and 97 bps bid, 105 bps offered, respectively.

Wells Fargo & Co., which had spent Wednesday around 58 bps bid, 63 bps offered, was "a little better."

Among the thrifts, he saw Washington Mutual, Inc. at 380 bps bid, 400 bps offered, some 20 bpsd wider on the day.

Among the brokerage names, he said "they were about 1 bp narrower," while Bear Stearns widened out 2 bps on its numbers to 79 bps bid, 84 bps offered.

In the cash bond market, another trader saw Bear's 6.70% notes due 2017 widen out between 5 bps and 10 bps to around 290 bps over, although he stressed that the quote came from fairly early in the morning.

Despite that bad news, he said, "the market was really quiet - my notebook is only half full."

He said that the later day focus, after the market steadied off its morning bad news, was dealing in Morgan Stanley's new 5.95% notes due 2017.

The $2.5 billion of notes priced at 200 bps over, and tightened slightly in aftermarket dealings to 198 bps bid, 195 bps offered.

The big new deal caused Morgan Stanley's existing notes to be pushed about 5 bps to 10 bps wider, the trader said.

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