News Corp. prices $1.25 billion 30-year bonds; upcoming holiday damps activity

By Sheri Kasprzak

New York, Nov. 8 - A small smattering of notes constituted market news Thursday ahead of a half day on Friday and a full close Monday for Veterans Day.

News Corp. priced $1.25 billion in 30-year bonds at Treasuries plus 200 basis points, upped from $500 million originally talked, at a 6.65% yield, a trader said.

A $50 million offering of 50-year floating rate notes from Procter & Gamble Co. also priced Thursday and market insiders noted that activity was slow as the week draws to an end.

"There are a few factors," said one market insider of the slowdown Thursday.

"We're just ahead of the half day tomorrow and things tend to wind down generally near the end of the week anyway. I absolutely feel that there is a healthy appetite for deals. I think investors are eager and I anticipate some things coming up next week. Next week should be good."

Another source said Thursday that it was very doubtful that things would pick up as the week winds down.

"I'm not seeing anything coming up for tomorrow [Friday] and there's very little out there today," he said. "I'd say maybe by the middle of next week things will get better but right now, it's very quiet."

In the secondary market Thursday, declining issues continued to lead advancers by around a 61/2-to-five margin, but no one name predominated.

While there was still investor angst regarding the financial issues - especially Morgan Stanley, acknowledging it lost some $3.7 billion on its subprime mortgage-related assets - the financials were a mixed bag, with some issues, including a heavily traded Lehman Brothers bond, up, and others on the downside.

The new News Corp. bonds were seen hanging in around issue price, while the recently priced Abbott Laboratories paper was seen continuing to trade several basis points inside its issue price.

Quiet but not dead

It may have been quiet Thursday but a few things popped up in addition to the $1.25 billion offering of notes from News Corp.

Public Service Co. of Oklahoma priced $250 million of 6.625% series G senior notes (Baa1/BBB/A-).

The 30-year notes were priced at 99.253% to yield 6.683% with a spread of Treasuries plus 200 basis points.

Citigroup Global Markets Inc.; Merrill Lynch, Pierce, Fenner & Smith Inc.; Morgan Stanley & Co. Inc.; and UBS Securities LLC are the joint bookrunners.

Also, Procter & Gamble priced $50 million in senior floating-rate notes.

The 50-year notes bear interest at three-month Libor minus 30 basis points.

They are callable at 105 on Nov. 9, 2037, declining to par in 2047.

There are puts on the notes annually at 98 from Nov. 9, 2008 to Nov. 9, 2012, at 99 on Nov. 9, 2013 and then annually to Nov. 9, 2017, and every three years at par starting Nov. 9, 2018.

UBS Investment Bank is the bookrunner.

New News Corps, Abbotts hang in

When the new News Corp. 30-year bonds came, a trader saw them at a spread of 200 bps bid, 198 bps offered over Treasuries, right around where the bonds had been issued.

"I didn't really see them perform - it just kind of held right around the new-issue spread."

He did not see any aftermarket dealings in the Public Service of Oklahoma deal.

The trader also said that the new Abbott Laboratories bonds which priced earlier in the week "came in a little bit, and they're holding in right now. They're a couple of basis points in from issue" - the five-year notes were at a spread of 117 bps when they priced, the 10-years at 127 bps and the 30-years at 150 bps. He said that the Abbott deal, in his opinion, "was priced pretty cheap, and it's kind of just holding its ground."

A winner and a loser

Among the established issues, Lehman Brothers' 6½% notes due 2017 were seen by a market source as probably the most actively traded issue; the bonds were up nearly a full point on the day in dollar price terms to just under par, and were seen ending at 223 bps over, about 3 bps tighter on the day. However, the bonds gyrated wildly during the session - at one point the spread was seen having ballooned out to 260 bps, as the price plunged to around 96.5, before recovering later on in the session to go home on a positive note.

There was no such positive note for HSBC Holdings' 6½% notes due 2037, which were a major loser on the day, falling about 1¾ points to a dollar price of just above 93, while its spread was seen by a source as having widened out by around 16 bps on the day to 236 bps.

A difficult environment

The first trader said that overall, there was "not much liquidity in the Street whatsoever," explaining that "dealers are coming toward the end of the year, so they don't want to take on any paper. Accounts are trying to sell stuff, but there's not many buyers out there."

As a result, he said "they're heavy with inventory and kind of looking for places to put paper, but because nobody is providing any liquidity, spreads are coming under pressure."

He said the impact was primarily being seen in the important financials sector, which has been whipsawed around by a flood of bad-news developments, with big banks and financial firms like Merrill Lynch, Citigroup, Washington Mutual and now Morgan Stanley having either recently taken or warned of their intention of taking losses in the billions of dollars related to the subprime mortgage debacle.

Among the non-financials, such as the utilities and industrial names, "it affects it a little bit - there's some pressure on those spreads, because of the [size of the looming forward] calendar than anything else, but it's not news driven, not headline news like you have with all of the financial names."

He said "it's a tough environment right now" for getting new deals done. "I know there are a lot of issuers who want to come before year-end - it's just that I don't know that it's a good environment for them right now."

Bank, broker spreads a mixed bag

A trader saw the CDS on Washington Mutual having widened out some 45 bps from their late-Wednesday levels to 390 bps bid, 410 bps offered.

However, he said that other bank names were out perhaps another 3 to 5 bps, with Citigroup at 83 bps bid, 90 bps offered, a 5 bps widening, Bank of America at 63 bps bid, 68 bps offered, 3 bps wider, and JP Morgan holding steady at 68 bps bid, 74 bps offered. He also saw Wells Fargo Corp. 4 bps wider at 67 bps bid, 72 bps offered, and Wachovia Bank's out by 5 bps at 90 bps bid, 97 bps offered.

The trader also saw the debt-protection costs for Merrill Lynch having widened out to 135 bps bid, 145 bps offered, out from around 120 bps bid, 130 bps offered at Wednesday's close and out further still from the 118 bps bid, 128 bps offered area initially seen in trading Thursday.

Other brokerage names, however, were seen pretty much hovering not far from their late-Wednesday levels, with Bear Stearns at 165 bps bid, 175 bps offered, Lehman at 143 bps bid, 153 bps offered and Morgan Stanley at 115 bps bid, 125 bps offered.

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