Union Pacific prices upsized deal, primary awaits House bailout vote; GE strong

By Andrea Heisinger

New York, Oct. 2 - Union Pacific Corp. braved the investment-grade market Thursday as others waited for the outcome of Friday's House of Representatives vote for the financial bailout plan.

That, combined with the release of unemployment numbers on Friday, will likely mean this is the extent of issuance for the week, a source said.

In the investment-grade secondary market Thursday, advancing issues led decliners by a narrow ratio. Overall market activity, reflected in dollar volumes, fell 13% from Wednesday's pace.

Spreads in general were seen wider, in line with generally lower Treasury yields; for instance, the yield on the benchmark 10-year issue declined by 10 basis points to 3.63%.

A trader saw no real aftermarket in the new bonds of Union Pacific.

He saw both of the "small little deals" brought to market Wednesday by power utilities Interstate Power & Light Co. and Wisconsin Power & Light Co. widen from where they had traded at their respective pricing.

General Electric Capital Corp.'s bonds were mostly significantly tighter, still benefiting from the news of Warren Buffett's big investment in its parent, General Electric Co.

Union Pacific prices notes

Union Pacific priced $750 million of 7.875% notes due 2019 Thursday at 99.817 to yield 7.904% with a spread of Treasuries plus 425 basis points.

Bookrunners were Barclays Capital Inc., Credit Suisse Securities and Merrill Lynch.

The issue was about the only thing in the market, a source said.

The deal priced under less-than-ideal circumstances, but as a source close to the issue explained: "When the buyers are there, you go for it."

Primary awaits bill vote

The primary market sat mostly silent Thursday as everyone awaited the outcome of the House's second vote on the bailout bill.

The stock market was down at the close due to worries about the economy and the fate of the bailout bill. The credit crunch is also worsening and seeping into the industrial sector.

Asked what the consensus was on syndicate desks for a positive outcome Friday, a source said: "It's not looking good."

Late Thursday, headlines came out that some House Republicans were trying to get the amount of the bill reduced to $250 billion instead of $700 billion.

"I think everyone's sick of politics getting in the way of the markets," a source said.

To pile on even more negative news, employment figures for September are announced Friday, and it is expected that unemployment will have risen, perhaps to 6% or 7%.

The Commerce Department released manufacturing figures Thursday, saying orders were on the decline in August.

Most attention remains focused on the House passage of the bill, which relatively speaking sailed through the Senate Wednesday night.

The version that passed was revised to include items that are aimed to appeal to those in the House who voted against the bill the first time.

Among those provisions are $150 billion in tax breaks for individuals and businesses, a temporary increase in the federal bank deposit insurance, and an attached clause that provides parity for mental health for health insurance.

"No one really knows what's going to happen," a source said. "It really could go either way. With the markets in the shape they're in, it could be really bad if it fails a second time."

One source said syndicate desks hope the bill does pass because it could mean a return to a steady stream of new issues in the coming week.

"Everyone's tired of going day to day and always looking at headlines," he said.

Interstate, Wisconsin Power wider

A trader said that the new Interstate Power 7.40% notes due 2018, which had priced on Wednesday at a spread of 358.2 bps over comparable Treasuries, had widened out to 372 bps bid, 368 bps offered.

He saw Wisconsin Power & Light's 7.60% bonds due 2038, which priced at 349.9 bps over, offered at 340 bps, without a bid, "which means they were gonna be a lot cheaper, because no one was buying anything. I'm sure that was just an offering, looking for anybody to stick their neck out."

Later, he saw the bonds offered at 354 bps without a bid,

"Yuck," he exclaimed. "That was another pig."

As for the new Union Pacific 7.80% notes due 2029, which priced at 425 bps over, the bonds were subsequently bid without at that same 425 bps.

GE keeps firming on Buffett news

Among the established issues, General Electric Capital Corp. - whose bonds had firmed late Wednesday on the news that billionaire investor Warren Buffett would buy $3 billion of parent General Electric Co.'s preferred shares, giving the big industrial conglomerate both some new cash as well as a badly-needed vote of confidence - were mostly higher as well in Thursday's session.

A market source saw GE Capital's 5.25% notes due 2012 tighten by some 80 bps to the 415 bps level, while its 4.125% notes due 2009 - which had ballooned out to above 600 bps Wednesday amid general market unease with even the mighty GE's ability to withstand the credit crunch - was seen to have tightened some 260 bps to the 350 bps level, in active dealings.

Another winner was GE Capital's 6% notes due 2012, seen 100 bps tighter at 400 bps. Its 5.625% notes due 2018 came in by 50 bps to the 370 bps level, while its 4.80% notes due 2013 were 32 bps tighter, at the 447 bps mark.

GE's most active issue, however, the 5.25% notes due 2009, were seen having widened 20 bps to about 390 bps.

GE inspires financials

With GE Capital leading the way upward in a relatively negative overall market, other financials were also strengthened.

Morgan Stanley's 6.625% notes due 2018 were about 30 bps better, at the 870 bid level, while Bank of America's 5.375% notes due 2012 came in by 75 bps, to 380 bps.

However, not all financials followed suit; Wachovia Corp.'s 5.25 bps due 2014, already out beyond the 1,000 bps over Treasuries level that marks a distressed bond, widened by another 80 bps.

In the credit-default swaps market, a trader said big-bank paper's debt protections cost were 5 bps tighter to 15 bps wider. Brokerage-firm debt CDS were 5 bps to 20 bps wider.

Morgan Stanley widened another 2 percentage points to an up-front cost of 15% to 17%, plus 500 bps annually, while Goldman Sachs widened to 430 bps bid, 450 bps offered.

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