Wachovia, Lehman Brothers, Ecolab, Kinder Morgan price as market weakens; few issues on tap

By Andrea Heisinger and Paul Deckelman

Omaha, Feb. 5 - Despite weak market conditions Tuesday, a few investment-grade issuers priced new issues including Wachovia Corp., Lehman Brothers Holdings Inc., Ecolab Inc. and Kinder Morgan Energy Partners LP.

In the investment-grade secondary market Monday, advancing issues held a three-to-two lead over decliners, while overall market activity, reflected in dollar volumes, jumped some 36% from Monday's levels.

However, no discernable features stood out. While there was upside activity in such names as AT&T Wireless and Wal-Mart Stores, there were negatives as well, notably Kinder Morgan Energy Partners, with that company's parent issuing a big new bond deal Tuesday.

Credit-default swap spreads linked to major brokerages debt, and big banks' debt were seen having widened out on the day amid new market jitters about the health of the financial sector.

New deal activity surges

Sources said they were surprised to see as many issuers as there were give the recession worries that affected the markets.

Wachovia priced $3.5 billion of fixed-to-floating rate perpetual preferred stock at par of $1,000, a source close to the deal said.

The non-cumulative preferreds pay a dividend of 7.98% for 10 years, and then a floating rate of Libor plus 377 basis points. It is non-callable for 10 years.

Wachovia Capital Securities LLC was bookrunner.

Lehman Brothers priced $1.65 billion in 7.95% non-cumulative perpetual preferred stock at par of $25. The preferreds are non-callable for five years.

Lehman Brothers Inc. and Citigroup Global Markets Inc. were bookrunners.

Cleaning and sanitation company Ecolab priced $250 million of 4.875% notes due 2015 at 99.805 to yield 4.908% at a spread of Treasuries plus 175 bps.

This was at the tight end of price talk of 175 to 180 bps, an informed source said.

Citigroup, Credit Suisse Securities LLC and J.P. Morgan Securities Inc. ran the books.

Kinder Morgan prices $900 million

Pipeline company Kinder Morgan priced $900 million of senior notes in two tranches.

The $600 million tranche of 5.95% 10-year notes priced at 99.791 to yield 5.978% at a spread of Treasuries plus 240 bps.

The company also reopened its 6.95% 30-year notes to add $300 million. They priced at 100.093 to yield 6.942% at a spread of Treasuries plus 260 bps.

Total issuance for the notes is now $850 million, including $550 million priced June 21, 2007.

Although the end of the day Tuesday was marred by a leaked report that sparked recession fears, one market source said he expects a couple of issuers to come into the market Wednesday regardless.

"It's kind of surprising we still saw a handful of deals as weak as things were today," he said. "Things got dramatically wider. I think the credit indices were something like 12 [bps] wider."

"Credit was a little beat up."

The continuing volatility means nothing solid is planned for new issues in investment grade.

One source, citing an analyst, said there could be an upcoming triple-A rated bond issuance related to the Microsoft Corp. bid for Yahoo Inc. Microsoft has said it plans to borrow money to help finance the proposed acquisition.

The source suggested Microsoft could raise $5 billion at a spread of Treasuries plus 160 bps.

Factoring in volatility

Issuers and investors alike realize that with the current state of the credit market, the investment-grade bond market will be volatile for the foreseeable future, a market source said.

"I think investors kind of know that and factor it into the price," he said.

They estimated issuers are paying an average of 30 bps new issue premium.

Volume Wednesday and the rest of the week depends on how the markets open, sources said.

"There will probably be a couple of deals [Wednesday]," one source said.

"I think tomorrow will be more quiet based on how weakly things went out today."

The source said he knew of a couple of issues on tap, but they were not slated to come into the market at a particular time. They included a couple of industrial issues and one financial.

Kinder Morgan existing bonds sink

News that Kinder Morgan was doing a new deal pushed the company's existing 6% notes due 2017 out by about 20 basis points to a spread of 230 bps over.

Back on the upside, the new-deal effect did not have similar impact on Caterpillar's existing bonds, with the heavy equipment maker's 4.850% notes due 2012 in nearly 10 bps to around the 140 bps level.

Apart from new-deal-impacted issues, AT&T's 8.125% notes due 2012 were seen 10 bps tighter at about the 190 bps level. Wal-Mart Stores meantime was better, its 6.50% bonds due 2037 having narrowed to 224 bps over, from having recently been as wide as 250 bps.

A trader said that in line with investor worry about the financial sector, debt-protection costs for major brokerage's paper were about 5 bps to 7 bps wider, while the banks had widened out between 4 bps to 8 bps. Among specific issues, he saw thrift giant Washington Mutual 20 bps out at 330 bps bid, 340 bps offered.

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