Georgia Power, Wachovia price issues as market takes breather; week seen with moderate issuance

By Andrea Heisinger and Paul Deckelman

Omaha, May 27 - Issues from Georgia Power Co. and Wachovia Corp. made up the bulk of Tuesday's offerings as the market continued to take a breather.

There was no single reason for the relatively low volume of issuance, sources said, but rather a combination.

"It's a mix of things," a market source said. "Things are slightly weaker today, and we just had the biggest two months of issuance. It's not often that we come back from a three-day weekend and see a lot of issues right off the bat."

In the investment-grade secondary market Tuesday, advancing issues trailed decliners by a more than four-to-three margin, while overall market activity, reflected in dollar volumes, more than doubled from Friday's sharply reduced pre-holiday levels.

Despite the lead for the declining issues, spreads in general were seen to have tightened as Treasury yields increased, with the yield on the benchmark 10-year note, for instance, rising by 8 basis points to 3.92%.

Georgia Power continues small-deal trend

The issue from Georgia Power is another example of how there are a lot of smaller issuers coming into the market recently, a source said.

The utility priced $250 million 5.4% 10-year senior notes at 99.551 to yield 5.459% with a spread of Treasuries plus 155 bps.

Banc of America Securities LLC and Morgan Stanley & Co., Inc. were bookrunners.

Meanwhile Wachovia reopened its issue of two-year floating-rate notes to add $50 million.

Total issuance is now $1.25 billion, including $750 million issued May 14.

The reopened notes priced at 100.025 with a spread of three-month Libor plus 90 bps.

Wachovia Capital Markets was bookrunner.

American Express Co. announced it was remarketing floating-rate notes due Dec. 1, 2033, according to a 424B5 Securities and Exchange Commission.

J.P. Morgan Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Inc. are bookrunners.

There are not a lot of upcoming issues announced, with a benchmark-sized offering of 10-year notes from Brazil's BNDES remaining on the calendar.

Morgan Stanley and Citigroup Global Markets are bookrunners for the development bank's issue.

The rest of the week is seen with moderate supply following recent weeks of heavy, record issuance.

Financials expected to be active

More financial and brokerage names are expected to issue this week, sources have said.

Wednesday's volume should pick up as the market rebounded slightly late Tuesday, a source said.

"The open this morning was not constructive," he said. "Then we saw a mid-day turnaround. The CDS spreads tightened and the close wasn't too bad."

The day rebounded slightly from Friday, a source said.

"Friday was pretty bad," he said. "It wasn't surprising there weren't more [issuers] willing to brave the market going into a long weekend."

Two market sources said they each had one or two issues that were potentials for Wednesday pricing.

Georgia Power up in trading

A trader saw the new Georgia Power 5.40% notes due 2018 as having firmed to a spread of 152 bps over comparable Treasuries, versus the 155 bps spread at which those bonds priced.

Elsewhere, he declared at the session was "very quiet," with not much activity in recently priced issues.

Lehman wider

He noted a substantial widening out of Lehman Brothers Holdings' bonds and debt-protection costs, citing market speculation that the investment bank may have some problems connected with its credit derivatives.

He said the bonds widened out "a ton," and said that credit-default swaps contracts linked to Lehman's debt widened out by as much as 100 bps from recent levels before coming in a little to a level about 80 bps wider.

However, another source saw Lehman's CDS rise 10 bps to 265 bps.

A trader at another desk said Lehman's CDS cost started in the morning about 295 bps over, but came in to 240 bps bid, 250 bps offered by the end of the day which left the contracts "about unchanged on the day after all was said and done," and with its shares higher.

He attributed the gyrations to the news that Banc of America Securities analyst Michael Hecht cut his fiscal second quarter estimates on Lehman, along with Morgan Stanley and Goldman Sachs Group Inc. Hecht said that of the three, Lehman will produce the worst results; he expects the brokerage to lose 50 cents per share during the quarter, versus a previous estimate of earnings of 76 cents per share. The analyst also reduced his price target to $43 from $50.

The Wall Street Journal ran an article quoting hedge-fund manager David Einhorn, who is shorting Lehman stock, as criticizing the fact that the company has only marked down some $200 million of its roughly $6.5 billion of collateralized debt obligations holdings in the first quarter, even though about a quarter of these assets hold what is considered "junk" status.

Lehman's 6.875% notes due 2018 were among the most widely traded issues on the day, a source said. The bonds widened out more than 40 bps to about 345 bps over. On a dollar-price basis, the bonds were seen having lost about 3½ points to 96.5 bid

Other brokers better

Apart from Lehman, a trader said, brokerages' debt-protection costs were generally about 4 bps to 7 bps tighter, while banks' CDS costs were 5 bps to 11 bps wider.

He saw Washington Mutual's CDS costs 10 bps tighter on the session at 350 bps bid, 370 bps offered.

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