Wisconsin Public Service, Potomac Electric, Xstrata price, several issues announced as tone improves

By Andrea Heisinger and Paul Deckelman

Omaha, Nov. 13 - Conditions improved slightly Tuesday, allowing Wisconsin Public Service Corp., Potomac Electric Power Co. and Xstrata Finance (Canada) Ltd. to price new issues.

The tone improved slightly after the long holiday weekend, sources said, although not as much as hoped.

In the secondary market Tuesday, traders said that a more generally positive tone was seen - even though declining issues actually outnumbered advancers nearly four-to-three. In the important financial sector, investors took their cue from positive statements by brokerage industry leader Goldman Sachs.

That in turn helped the credit-default swap debt-protection prices of banks such as Citigroup and Bank of America to narrow, and likewise helped other brokerage names to narrow as well, such as Bear Stearns and Lehman Brothers.

Back in the primary, Wisconsin Public Service priced $125 million of 5.65% 10-year first mortgage notes at 99.898 to yield 5.664% at a spread of Treasuries plus 140 basis points.

Bookrunners were UBS and Wachovia.

Potomac Electric priced $250 million of 6.5% 30-year first mortgage bonds at 99.751 to yield 6.519% at a spread of Treasuries plus 190 bps.

BNY Capital Markets and Wachovia were bookrunners.

Xstrata Finance priced $500 million 6.9% 30-year bonds at 99.687 to yield 6.925% at a spread of Treasuries plus 230 bps.

Bookrunners for the Rule 144A issue were Citigroup, J.P. Morgan, Barclays and RBS Greenwich Capital.

UnitedHealth leads calendar

Several upcoming issues were announced.

UnitedHealth Group, Inc. is expected to price a $1.6 billion four tranche issue early Wednesday, a source close to the deal said.

The $250 million three-year tranche launched at Treasuries plus 165 bps, the $450 million 10-year tranche at Treasuries plus 170 bps, thee $250 million 10-year tranche at Treasuries plus 180 bps and the $650 million 30-year tranche at Treasuries plus 205 bps.

Bookrunners are Goldman Sachs, Deutsche Bank, J.P. Morgan and Merrill Lynch.

Fiserv, Inc. announced an issue of notes in five and 10-year tranches. It is expected to price toward the end of the week, a source close to the issue said.

Credit Suisse, Wachovia and J.P. Morgan are bookrunners for the issue that will be used to pay a portion of the $4.4 billion purchase price for CheckFree Corp.

Wachovia Capital Trust X announced an upcoming issue of hybrids also expected to price toward the end of the week. Sole bookrunner is Wachovia Securities.

Questar Gas Co. announced it will issue up to $150 million in securities, according to a Securities and Exchange Commission filing.

Also announced was Jebel Ali Free Zone FZE, expected to price a benchmark-sized conventional bond and a sukuk via Barclays, Deutsche Bank, Dubai Islamic Bank and Lehman Brothers. The road show for the Dubai-based trade zone authority began Nov. 11.

Reliance LP announced an upcoming issue of C$1.075 billion senior unsecured notes (Baa3/BBB-) in five and 10-year tranches via Citigroup and RBC Capital Markets. Reliance Intermediate Holdings LP is also expected to price a $293 million junk-rated issue.

Both will be run off the high-grade desk and are being sold via Rule 144A.

But ongoing market volatility caused Hyundai Capital Services to postpone an issue of benchmark-size five-year senior unsecured bonds (Baa2/BBB).

The company cited unfavorable market conditions.

Bookrunners were Deutsche Bank, Citigroup, Goldman Sachs, J.P. Morgan and Merrill Lynch for the Rule 144A issue.

But some reluctance still

Companies are continuing to decide day to day whether to issue, sources said.

"Given the tone in equity we expected credit to be stronger today," a market source said.

Another source said it was a better day than has been seen in a while, although some issuers are still holding off.

"There are still a lot of people on the sidelines waiting," the source said.

The day to day trend is likely to continue as long as the volatility does.

"It's more a function of market tone than of backlog," a source said. "I think we do have backlog but they're still going to wait. We're still on a day-to-day basis."

Good news from Goldman

After Goldman's chief executive officer, Lloyd Blankfein, told a financial services conference in New York that his company will not be taking any significant charges to write off losses related to subprime mortgages - unlike almost every other large bank or brokerage name - and further said that it maintains a short position in the subprime mortgage market, continuing to bet against things improving there any time soon, Goldman's shares rose and its bonds tightened.

"In general, the banks and the financial names have done gradually better as the day has progressed," a trader said, quoting the Goldman 6¼% notes due 2017 as having tightened to about a bid level 195 basis points over comparable Treasuries in the afternoon , well in from their initial levels around 205 bps bid, 195 bps offered.

Later on in the day, another market source saw the bonds tighten even further, getting as good as around 188 bps over.

The first trader said: "That's a good sign. I don't know if [the sector] will be able to hold these gains - but the way they've performed, it's a good sign for the banks and brokerages in general."

He noted that besides the good news from Goldman "JP Morgan came out and said they're pretty OK with [collateralized debt obligations] and their exposure was minimal."

He said that "most of the CDS [levels] are in across the board on them.

He said that the market essentially shrugged off bad news from Bank of America, which said that it might have to write down as much as $3 billion of its own CDO exposure.

Bank, broker CDS tighten

A trader said that credit-protection costs for investors in bank paper narrowed by at least 7 to 12 bps from Friday's levels, quoting Citi's CDS cost at 70 bps bid, 75 bps offered, in about 8 bps and B of A's at 56 bps bid, 61 bps offered, in by 7 bps.

Among other big banks, JP Morgan's narrowed by 12 bps, also to 56 bps bid, 61 bps offered, Wachovia's by 5 bps to 91 bps bid, 96 bps offered, Wells Fargo's by 10 bps to 56 bps bid, 61 bps offered, and Washington Mutual's also 10 bps tighter, at 335 bps bid, 365 bps offered.

The trader further saw the brokerage names "about 10 to 15 bps tighter on the day," with Bear Stearns at 155 bps bid, 165 bps offered, Lehman at 125 bps bid, 135 bps offered, Merrill Lynch at 120 bps bid, 130 bps offered and Morgan Stanley at 97 bps bid, 107 bps offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.