Praxair, Deutsche Bank price issues as tone sours amid market weakness, news of more write-downs

By Andrea Heisinger and Paul Deckelman

Omaha, Nov. 7 - A day after a window opened for issuers, the tone again took a downward slide Wednesday. Issues from Praxair, Inc. and Deutsche Bank Capital Funding Trust X managed to make it to the market.

"Things were weak at the beginning of the day, but we managed to squeeze it [Praxair] in and it went well," said a source close to the deal.

The company priced $400 million of 5.25% seven-year bonds at 99.768 to yield 5.29% at a spread of Treasuries plus 116 basis points.

Bookrunners were Banc of America, Citigroup and J.P. Morgan.

Deutsche Bank priced $700 million, or 28 million, 7.35% perpetual trust preferred securities at par of $25.

Bookrunners were Deutsche Bank, Citigroup, Merrill Lynch and Wachovia.

A few issuers entered the market Tuesday in a tone of some stability.

That collapsed after the Dow Jones Industrial Average again plunged and investment banks announced more write downs.

A source noted Morgan Stanley announced an additional $3.7 billion for the third quarter and American International Group, Inc. reported unfavorable earnings.

"Everything's just day to day right now and I don't think that's going to change for a while," a market source said.

"There might be a few guys that could go tomorrow [Thursday] but we just don't know until we see how things open. I doubt there will be anything Friday because it's a half day."

The announcements from Morgan Stanley and AIG could sour things for the rest of the week and possibly beyond, a source said.

"The Street definitely has a healthy backlog right now," a source said. "I think there are people who want to get into the market and have been holding off because a window hasn't opened."

Secondary weak

In the secondary market Wednesday, the previous session's negative tone remained in effect, with about a six-to-five ratio of declining issues to advancers.

Financial names were once again hard hit, on analyst warnings that Citigroup might have to take an even bigger fourth-quarter writedown than the $11 billion top figure the banking giant had thrown out on Tuesday, as well as the news that the nation's largest savings and loan operator, Washington Mutual, Inc., had warned that its full-year credit losses could amount to between $2.7 billion to $2.9 billion - almost double what WaMu estimated back in July, when the subprime meltdown began wreaking havoc in U.S. mortgage markets.

Also spooking the sector was news of a widened probe into the mortgage-lending industry by New York attorney general Andrew Cuomo, who is scrutinizing the actions of WaMu, among other companies.

The sector angst also caused credit-default swaps spreads of brokerage names such as Bear Stearns, Lehman Brothers, Merrill Lynch and Morgan Stanley to widen out by about 15 to 20 basis points on the session

WaMu widens on loss estimate

Washington Mutual's 5% notes due 2011 were seen having fallen the equivalent of 3.5 points in their dollar price to 91 at mid-afternoon on the news that the company expects sharply wider losses than previously projected. The spread on the bonds widened out to a yawning 351 basis points from around 245 bps at the close Tuesday. By the end of the session, they had come slightly off those lows to end trading at about 93 bid, still down 1½ points on the session, with the spread having come in a little from the earlier wide levels to around 295 bps - still a 50 bps deterioration from Tuesday's close.

The company's 7¼% notes due 2017 on the other hand, were actually seen having come in by around 7 or 8 bps from Tuesday's levels, to about 305 bps - at least initially. However, a source pointed out, that was largely due to several smallish trades which might not be representative of the bonds' true value. A far more likely indicator on that score was a very large trade - in the $5 million-plus region - which saw the bonds widen out as far as the 356 bps area. By the end of the day, the bonds had fallen the dollar price equivalent of more than 2 points to 96.138, and were quoted at a 349 bps spread, out some 36 bps on the day.

The widening in the bonds went along with amore than 17% slide in the company's New York Stock Exchange-traded shares.

Financial worse

A trader saw widespread 'widening in the financials," particularly WaMu and Citi, saying "there were plenty of bids wanted" in those names, as well as in insurer AIG. "I saw quite a few bids-wanted in those."

Perhaps the most busily traded issue on the session was Lehman's 6 7/8% notes due 2037, whose dollar-price was seen down the equivalent of more than 5 points to 94 bid. On a spread basis, it widened out to about 271 bps versus 227 bps at the close on Tuesday.

Brokerage spreads widen

Along with financial bonds, debt-protection spreads on bank and brokerage names were seen having also widened out - a sign of flagging investor belief in the soundness of the sector, since CDS prices move inversely to investor confidence.

A trader saw Bear Stearns' debt-protection costs jump to 165/180 bps, from 147/157 bps on Tuesday, while Lehman's widened to 145/160 bps from 125/135 bps Tuesday. Merrill Lynch's CDS cost rose to 120/130 bps from a prior 105/115 bps, while Morgan Stanley's was out to 117/127 bps from 100/108 bps before.

Target active, but hangs in

Apart from the financial names, Target Corp.'s 6.5% notes due 2037 were seen trading actively - but a trader said that when all was said and done, the bonds were hanging in at around the same 175 bps to 178 bps context. There were "decent -sized blocks trading, without a doubt", said the trader - but the bonds stayed within a narrow 100.5-101 range on a lack of fresh real news about the discount retailing giant.

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