General Mills, Hong Kong Gas, Transneft issue; GE plans 40-year notes; July, August issuance seen similar

By Andrea Heisinger and Paul Deckelman

New York, July 31 - Market conditions held steady enough Thursday for issues to price from General Mills, Inc., Hong Kong & China Gas Co. Ltd. and OAO AK Transneft.

The two foreign issuers took the largest chunk out of the market, pricing $2.65 billion collectively.

"No one really knew at the open which way the market would go," a source said.

In the investment-grade secondary market Thursday, advancing issues led decliners by a better-than two-to-one ratio, while overall market activity, reflected in dollar volumes, fell 3% from Wednesday's pace.

Spreads in general were seen wider, in line with notably lower Treasury yields; for instance, the yield on the benchmark 10-year issue shrank 9 basis points to 3.95%.

Secondary investors seemed to have little appetite for General Mills' new bond issue, which ended up trading right at its pricing spread.

There also seemed to be little interest in the new Rogers Communications Inc. deal that came to market on Wednesday.

Walgreen Co.'s recently priced issue, on the other hand, was actively traded at slightly better levels on the session - and sharply better levels than those seen when the issue priced.

Day's issues top $3 billion

An issue from General Mills was upsized Thursday to $700 million from the announced $500 million.

The 5.25% five-year senior notes priced at 99.784 to yield 5.299% with a spread of Treasuries plus 205 bps.

This was at the tight end of price talk of 205 to 210 bps, a source close to the deal said.

"It was a good outcome," he said. "The issue was about three times oversubscribed."

At the market open Thursday, it was unclear which way the tone was headed, but the company decided to go ahead with the issue.

"They're a high-quality name, high-B rated," the source said. "They're considered a recession-proof, kind of bullet-proof name."

The issue carried about a 20 bps new issue concession, which the source said was good given market conditions.

Bookrunners were Banc of America Securities LLC, Barclays Capital Inc. and Goldman Sachs & Co.

Hong Kong Gas, Transneft brings deals

Also pricing Thursday were two foreign issuers.

Hong Kong & China Gas priced $1 billion of 6.25% 10-year notes at 99.319 to yield 6.343%, with a spread of Treasuries plus 237.5 bps.

The notes priced under Rule 144A and Regulation S.

HSBC Securities and Morgan Stanley & Co., Inc. were bookrunners.

Transneft priced $1.65 billion loan participation notes in two tranches, also under Rule 144A and Regulation S.

The 7.7% five-year notes priced at par to yield 7.7% with a spread of Treasuries plus 444 bps, while the 7.8% 10-year notes priced at par to yield 7.8% with a spread of Treasuries plus 473 bps.

Credit Suisse Securities ran the books.

GE Capital plans issue

General Electric Capital Corp. announced an upcoming issue of 40-year GE Capital InternotesThursday.

Sources said they did not know exactly when it would price, but that it would take at least a couple of days because the offering is aimed at retail.

They are non-callable for five years.

Bookrunner is Banc of America Securities.

July shows slowdown

As traders and analysts tallied the month's total, it was predictably quiet, with estimates varying between $24 billion and $30 billion in issuance.

J.P. Morgan Securities Inc. took both the top year-to-date and monthly issuance.

The year-to-date total, according to Prospect News' numbers, is $568.92 billion, $33.83 billion of it in July.

J.P. Morgan was underwriter for $5.971 billion of July's total.

The month's seemingly low total - about half of the $62 billion in June - wasn't surprising to many.

"It was really quiet," a source said. "Obviously there was a lot of volatility and wide spreads scared off a lot of industrial names and financials were in blackout for most of the month."

"If they don't need money, they're not going to come [into the market]."

Companies are waiting for the new issue market to improve, and spreads to tighten.

"Ideally, issuers are looking for April or May levels, but we don't know when that's going to happen," a source said.

August will likely be equally as quiet, as there isn't much of a backlog, he added.

End of week seen quiet

There likely won't be much for issuance Friday, as companies wanting to borrow have already done so earlier in the week, a source said.

"I don't think there's really anyone left out there, but you never know," he said. "Sometimes people sneak things in at the end of the week."

General Mills can't get traction

A trader said that the new General Mills deal did "not [do] all that hot" when the $700 million of 5.25% senior notes due 2013 were freed for secondary dealings. "Allocations were pretty bad," he declared.

Although traders tried to take the bonds higher, with the spread narrowing to a bid of 202-203 bps from the 205 bps level at which the issue had priced, that bid "got hit a couple of times," with the bonds pretty much left at 205 bps bid, 203 bps offered.

Rogers struggles in secondary

Another new issue making a lackluster showing on Thursday was Rogers Communications, which the trader said was "another bond that ended up not trading all that well."

He saw the $1.4 billion of 6.80% notes due 2018, which priced Wednesday at a spread of 278 bps over comparable Treasuries, having actually widened a bit Thursday to 280 bps bid, 276 bps offered.

The new $350 million of 7.50% notes due 2038, which had priced at 288 bps over, were marginally firmer at 287 bps bid, 282 bps offered.

No easy formula for DuPont

He saw some of the other recent deals "a little softer."

E.I. DuPont de Nemours & Co.'s 6% notes due 2018 "was kind of wrapped around 186 [bps] after trading as good as 184 [bps]" on Wednesday; the Wilmington, Del.-based chemical giant priced $1.25 billion of those bonds at 185 bps over on July 23 as part of a two-part offering which also included $750 million of 5% notes due 2013, which priced at 168 bps over.

Walgreen holds its own

He saw Walgreen's 4.875% notes due 2013 "a little bit active today," trading at 152 bps bid, 150 bps offered. Another market source said that the Deerfield, Ill.-based top U.S. pharmacy operator's new bonds - $1.3 billion of which had priced at 175 bps over on July 14 - were among the most active issues on the day.

The first trader characterized activity in the credit as axe-driven, and said that it was "slightly better."

WaMu a winner on hedge fund investment

A trader said that the still-nominally investment grade-rated Washington Mutual Inc. "was the big mover," calling its 4% notes due 2009 "a heavily traded bond, all over the place," before finally settling at 86 bid, 87 offered which he called "slightly up," maybe around a point.

WaMu's 4 5/8% notes due 2014 were up more than 2 points to just under the 49 mark.

Its 8¼% notes due 2010 were seen to have firmed to 68 bid.

The bonds "had been dropping for the last week, or week-and-a-half," following the Seattle-based thrift's July 22 announcement of a $3.3 billion quarterly loss "and then were slightly up today." He said that "they were on CNBC for a while, talking about how maybe [the company's situation] wasn't quite as bad" as previously thought.

He also noted a 12% rise in the troubled company's shares, which occurred after hedge fund Toscafund Asset Management LLP disclosed a 6% stake in the nation's largest thrift. The London-based fund said that it had accumulated 105.5 million WaMu shares, enough to make it the second-largest shareholder behind investor David Bonderman's TPG Capital, which holds 227 million shares.

After having pushed up as much as 22.6% intraday, the shares retreated but still ended up 59 cents, or 12.45%, to end at $5.33. Volume was 195.4 million shares, nearly three times the norm.

CDS spreads all over

A trader said that credit-default swap spread costs for major bank and brokerage paper were a mixed bag on Thursday. He saw the banks' debt-protection costs "a little wider to a little narrower," with Wachovia Corp.'s debt-protection cost 15 bps tighter at 242 bps bid, 252 bps offered.

Major brokerage CDS costs were 5 bps narrower to 10 bps wider. He saw Lehman Brothers' protection was 10 bps wider at 318 bps bid, 328 bps offered.

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