Wal-Mart, National City, Harvard price as tone perks up, more expected Thursday; financials better

By Andrea Heisinger and Paul Deckelman

Omaha, Jan. 23 - Wal-Mart Stores Inc., National City Corp. and Harvard University priced issues on a day that started out gloomy but took an upswing in the afternoon.

The reopening of notes from Wal-Mart could encourage other issuers to come to the market, a source said.

In the investment-grade secondary market Wednesday, advancing issues outnumbered decliners by a better than four-to-three ratio. Overall activity, reflected in dollar volume, jumped an eye-popping 84% from Tuesday's levels.

Spurred by the big equity rally in financial names - a product of Tuesday's announcement of a big Federal Reserve cut in interest rates as well as news reports that a rescue plan to provide capital for the beleaguered bond insurers like MBI Inc. and Ambac Financial Group - many financial bonds tightened markedly, including such names as Goldman Sachs, Merrill Lynch and JP Morgan. MBIA's recently priced 14% notes bounced back into the 90s after having begun the week around 70; credit default swap spreads on MBIA and rival Ambac, among other financials tightened.

Apart from the financial names, traders saw brisk demand for Wal-Mart's new add-on bonds.

Wal-Mart upsizes

Wal-Mart upsized its reopened amount to $1.5 billion from $1 billion. This brings the total issuance to $4.25 billion in two tranches.

The company reopened its 5.8% 10-year notes to add $750 million priced at Treasuries plus 167 basis points. That was tighter than price talk in the 170 bps area, a market source said.

Wal-Mart reopened the 6.5% 30-year tranche to add $750 million priced at Treasuries plus 217 bps. This was also tighter than price talk that was 220 bps area.

Bookrunners were Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Lehman Brothers Inc. and UBS Investment Bank.

Each tranche carried a "pretty big premium" a source said. He estimated the 10-year notes had about a 30 bps new issue premium, with the long bonds carrying about 25 bps.

Other companies wanting to get into the market will likely have to pay a similarly high premium to do so, sources said.

National City brings capital securities

Another issuer, National City, priced $500 million in fixed-to-floating rate normal APEX notes at par to yield 12%.

The perpetual notes were priced through the company's subsidiary National City Preferred Capital Trust I.

Goldman Sachs & Co. was bookrunner.

Another issuer was Harvard, with $387.21 million of corporate bonds.

The series 2008A President and Fellows of Harvard College taxable bonds (Aaa) priced as fixed-rate bullet securities, with $144.55 million maturing in 2013 and $242.655 million maturing in 2038.

The five-year tranche priced with a 3.7% coupon to yield 3.731% and the 30-year piece priced with a 5.625% coupon to yield 5.631%, a sales source reported.

Morgan Stanley was lead underwriter.

BofA, M&T coming

Two upcoming deals were announced Wednesday from Bank of America Corp. and M&T Capital Trust IV.

Bank of America said in a press release it will issue $6 billion of preferred stock, including non-cumulative perpetual straight preferreds and convertible stock.

They will have a liquidation preference of $25,000 per share, with proceeds going to general corporate purposes.

Banc of America Securities LLC will be bookrunner.

M&T will issue trust preferred securities, likely on Thursday, an informed source said. They will be priced at $25 per security with proceeds used for general corporate purposes.

Bookrunners are Citigroup Global Markets Inc. and UBS Investment Bank.

Wednesday started off in the same vein as Tuesday, with a rocky open in the morning.

"We saw a strong recovery in the afternoon in the credit and equity markets," a source said.

Because of the strengthening of the tone in the latter half of the day, it's likely there will be more issuers Thursday, he said.

A backlog has accumulated due to recent volatility, and it's highly possible some of that could come out yet this week, although with pricey new issue premiums attached, a source said.

"I think that things like Wal-Mart will move things along a little," a market source said.

Financial names firmer

With the stocks of banks, brokerages and other financial names getting a good bounce Wednesday on Tuesday's 75 bps interest rate cut by the Fed - and prospect of another 50 bps reduction when the central bank's FOMC policy panel holds its regularly scheduled meeting next week - as well as the hopeful news about a possible solution to the bond insurers' funding woes, sector bonds were seen better as well.

Among the gainers were Goldman Sachs' 5.95% notes due 2018, which came in nearly 30 bps to the 205 bps level, Merrill Lynch's 5.45% notes due 2014, seen about 25 bps tighter at the 190 bps mark, and JP Morgan's 6% notes due 2018, which also picked up about 25 bps to tighten to the 175 bps level.

Bond insurers catch a bid

A trader said that MBIA's 14% notes due 2032 - which are now trading around at the junk desks at many firms despite their nominally investment-grade rating - were up as spectacularly as their recent fall.

The bonds priced at par on Jan. 11 - but swooned as low as the 70 level last week, dragged down by investor angst about the viability of the sector, after MBIA's closest rival, the smaller Ambac Financial Group, was threatened with a ratings downgrade by Fitch Ratings, which eventually did lower its financial strength ratings to AA from AAA, a body blow to the bond insurer, which must have AAA ratings if it expects to win any new business.

The larger Moody' Investors Service also put the company - and sector peer MBIA as well - under scrutiny for a possible downgrade. The ratings agencies worry whether the bond insurers have the financial resources to handle an anticipated flood of claims in the event that mortgage-backed securities, collateralized debt obligations and other instruments based at least in part on securitized subprime mortgage loans ever default - a rising possibility, given the number of subprime mortgages whose holders have defaulted or even slid into foreclosure. Ambac earlier this month posted large losses related to subprime loans, and scrubbed plans to raise $1 billion of new financing through an equity sale.

But the sector got a boost Wednesday on news reports that New York State's insurance regulators met with unidentified U.S. banks to discuss raising new capital for the bond insurers. One report said that the cash infusion could be as much as $15 billion, and would be aimed at preserving the bond guarantors' top credit ratings.

A trader saw the MBIA notes "really bounce" to around the 90 level from the recent lower 70s, noting that the company's equity was also trading at around double the $8 area at which it was trading as recently as Friday.

MBIA "was up big time," another trader said, seeing the bonds go out at 90 bid, 95 offered, up some 10 points from Tuesday's levels and some 20 points above where they had traded on Friday.

The first trader also saw MBIA and Ambac's credit-default swaps tighter by about 250 bps Wednesday than they had been, seeing them around the 450 bps range.

CDS spreads tighten

The trader also noted that banks and brokerage CDS costs "gapped in" by as much as 15 to 20 bps from Tuesday's levels, reflecting greater investor confidence in the sector.

Among the banks, he estimated Bank of America at 69 bps bid, 74 bps offered, Citigroup at 76 bps bid, 83 bps offered, and JP Morgan at 64 bps bid, 69 bps offered. Among the brokers, Bear Stearns came in to 220 bps bid, 240 bps offered, while Merrill Lynch tightened to 155 bps bid, 165 bps offered, and Goldman Sachs likewise narrowed to 80 bps bid, 85 bps offered.

Wal-Mart is welcomed

Apart from the financial names, a trader said that Wal-Mart's re-opened bonds traded solidly higher, with its 6.50% bonds due 2037 tightening to about 200 bps bid, 198 bps offered, well in from the 217 bps bid level at which the add-on issue priced.

But while the deal "traded well in secondary," and firmed "smartly," he said that issuers in general recently have "priced things cheap just to get the deal done," and they then re-price the secondary market.

He said that the existing bonds, before this deal got done, had been trading around 195 bps bid, 190 bps offered. "So they've [now] kind of converged in the middle, but closer to where the bonds were pre-new deal."

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