Vulcan, Danaher, West Penn Power, Archer-Daniels, Fannie Mae price as spreads tighten

By Andrea Heisinger and Paul Deckelman

Omaha, Dec. 6 - Another chunk was taken out of the backlog of new issues Thursday with Vulcan Materials Co., Danaher Corp., West Penn Power Co., Archer-Daniels-Midland Co. and Fannie Mae pricing.

Spreads on issues were all looking tighter, a market source said.

The investment-grade secondary continued to be dominated by after-market activity in new bonds of such companies as Kraft Foods Inc. and British Telecommunications plc.

Some existing bonds, including Kraft's, were lower as players got out of those issues to buy the new paper.

Financial names like Goldman Sachs and Citigroup were also seen better, presumably on favorable market reaction to the long-awaited subprime mortgage rescue plan, seen as a way of stemming the rising tide of foreclosures and bringing some stability back to the troubled market for mortgage-backed assets. Bank and brokerage credit default swaps used to hedge against a possible default in the companies underlying bonds tightened accordingly.

Vulcan brings $1.225 billion

In the primary, Vulcan priced $1.225 billion of notes in four tranches, all of which came in line with price talk.

The $325 million of three-year floaters priced at par to yield three-month Libor plus 125 basis points.

The $300 million of 5.6% five-year notes priced at 99.822 to yield 5.642% at a spread of Treasuries plus 225 bps.

The $350 million of 6.4% 10-year notes priced at 99.945 to yield 6.408% at a spread of Treasuries plus 240 bps.

The $250 million of 7.15% 30-year notes priced at 99.722 to yield 7.173% at a spread of Treasuries plus 270 bps.

Banc of America Securities LLC, Goldman Sachs & Co., J.P. Morgan Securities Inc. and Wachovia Capital Securities LLC were bookrunners.

Danaher priced $500 million of 5.625% 10-year senior notes at 99.391 to yield 5.704% at a spread of Treasuries plus 170 bps.

This issue also came in line with price talk that was in the 170 bps area.

Bookrunners were Merrill Lynch, Pierce, Fenner & Smith Inc., J.P. Morgan and UBS Investment Bank.

West Penn priced $275 million of 5.95% 10-year first-mortgage bonds at 99.723 to yield 5.987% at a spread of Treasuries plus 200 bps.

Barclays Capital Inc., J.P. Morgan and Scotia Capital ran the books on the Rule 144A issue.

Archer-Daniels priced $500 million in 6.45% 30-year notes at 99.554 to yield 6.483% at a spread of Treasuries plus 200 bps.

Bookrunners were Barclays, Deutsche Bank Securities Inc. and Goldman Sachs.

Fannie Mae sells $7 billion preferreds

Fannie Mae priced $7 billion of fixed-to-floating rate preferred stock, amounting to 280 million non-cumulative perpetual shares.

The preferreds have a fixed rate of 8.25% until Dec. 31, 2010, and then switch to the greater of Libor plus 423 bps or 7.75%.

Bookrunners for the issue were Lehman Brothers Inc. and Merrill Lynch.

One source said Thursday's issues were it for a week that had had a steady stream of new offerings.

"We took a lot out of the backlog," a source said. "It's been a pretty clean week. We probably won't see any more numbers like we did last week."

Another market source said there may be more coming down the pipe for Friday, making it a little different from the ends of most weeks where there are no new issues.

"We've definitely taken a big bite out of it [the backlog], but I think there are still a handful of industrial and financial issuers looking at the market," the source said.

"We're probably not going to see any more numbers like last week, but we should see some tomorrow."

New issues still at center stage

A trader said that the people at his shop had been "very, very busy" - in fact, they were "swamped" by the migration of the new paper to the secondary market.

"We've seen a lot of pretty good bids to the issues," he said. "Where they're bringing issues, they're bringing them at levels where they get the things done, and then see them tighten up anywhere from 5 basis points to 10 basis points in the secondary market. It's hurt the outstanding issues - but they're getting the deals done, and seeing the deals the deals pop, once they free up."

He saw the new Kraft Foods 6 1/8% notes due 2018 firm to 215 bps bid, 213 bps offered over Treasuries, in from their 225 bps spread at the pricing. Its new 6.925% notes due 2038 were likewise trading at 238 bps bid, 235 bps offered over, having narrowed from 250 bps at the pricing.

But Kraft's outstanding 7% notes due 2037 were seen having widened out by 14 bps to 239 bps.

While Kraft was doing well in the aftermarket, British Telecom was getting a busy signal; the trader saw its new five-year bonds, which priced at 190 bps over, trading at 190 bps bid, 188 bps offered, and its 10-years at 205 bps bid, 203 bps offered, little changed from its 205 bps issue spread.

One name which several traders said they had not seen at all in secondary was the new Harley Davidson 5¼% five-year notes, which priced at 200 bps over. Referencing the iconic motorcycle manufacturer's ticker symbol, one noted "the 'HOGs' just came and went."

Plan helps financial names

Formal announcement of the government-negotiated plan to help subprime borrowers gave some financial issues a lift, including Citigroup's 5 1/8% notes due 2014 whose spread narrowed to 137 bps, a 35 bps pickup, and Goldman Sachs, whose 6.45% bonds due 2036 were seen about 15 bps tighter at 225 bps.

A trader said that major bank and brokerage CDS costs were meantime tighter versus Wednesday's levels. Among the big banks, he said, debt-protection costs had narrowed by about 2 to 3 bps, with Bank of America, JP Morgan and Wells Fargo all around 48 bps bid, 54 bps offered, Citigroup at 68 bps bid, 74 bps offered and Wachovia Bank at 86 bps bid, 92 bps offered.

Among the thrifts, Washington Mutual was 15 bps tighter at 340 bps bid, 360 bps offered. In agency CDS spreads, Fannie Mae and Freddie Mac were each 2 bps tighter at 35 bps bid, 40 bps offered.

Among the brokerage names, spreads generally were about 3 to 5 bps tighter, with the cost of protecting Bear Stearns debt at 182 bps bid, 189 bps offered, Lehman Brothers at 133 bps bid, 140 bps offered, Merrill Lynch at 143 bps bid, 150 bps offered, and Morgan Stanley at 95 bps bid, 102 bps offered.

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