CVS, Procter & Gamble price floaters; active calendar ahead; utilities tighten in weak secondary

By Andrea Heisinger

New York, Sept. 5 - CVS Caremark Corp. and the Procter & Gamble Co. surprised some in the investment-grade primary market by issuing notes Friday in the wake of unexpectedly high unemployment numbers that were released in the morning.

The 6.1% unemployment rate in the United States was the highest in five years, prompting other potential bond issuers to hold off on their plans until at least the Sept. 8 week.

The secondary market was weak, although it rebounded somewhat from the open, with light volume.

CVS prices floaters

Pharmacy chain CVS Caremark priced $350 million in two-year floating-rate senior notes Friday, surprising some who were not expecting any more issues for the week.

The notes priced at par to yield three-month Libor plus 150 basis points.

The issue's proceeds are being used for the acquisition of Long's Drug Stores Corp.

Lehman Brothers, Banc of America Securities LLC, Deutsche Bank Securities Inc., Morgan Stanley & Co., Inc. and Wachovia Capital Markets were the bookrunners.

P&G prices second issue

Procter & Gamble priced its second deal of the week Friday, doing $82.5 million of 50-year floating-rate notes.

The company also priced a $2 billion two-tranche issue of floaters Thursday.

Friday's offering priced at par with a coupon of three-month Libor minus 30 bps.

The notes are putable on Sept. 15, 2009, thereafter annually on Sept. 15 until 2019 and then every third year on Sept. 15. The notes are callable on or after Sept. 15, 2038.

Bookrunners were Deutsche Banks Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Inc., Morgan Stanley & Co., Inc. and UBS Investment Bank.

Week nets $12 billion issuance

The week ended with $12.39 billion of new deals and was heavy with utility names.

Among the issuers that priced more than $1 billion were KfW, Oncor Electric Delivery, Inter-American Development Bank, John Deere Capital Corp. and Procter & Gamble.

Smaller amounts came from American Express Credit Corp., Spectra Energy Capital, LLC, Northern States Power Co., Oklahoma Gas & Electric Co. and Ohio Power Co.

Although it was a holiday-shortened week in the United States due to Labor Day, the amount of offerings beat the previous week's $7.7 billion.

Sour tone to end week

More bad economic news tainted the end of the week, with disappointing employment numbers emerging from the Labor Department.

Bad news had been expected, and was realized as unemployment rose to 6.1% in August - an increase from the 5.7% in July.

"No one was really surprised," a market source said. "We were actually surprised to see any issuers today."

The unemployment numbers were the highest in five years, scaring away any other potential issuers for the day.

A backlog of companies is sitting on the sidelines waiting to come into the market, sources said. They have been looking at levels and waiting until market conditions improve.

"Some of them are going to have to issue next week," one source said. "They were waiting until after Labor Day, and since this week didn't look too good and was short, that leaves next week."

One source called the coming week "very active," adding that it should look like Wednesday and Thursday of this week when multiple new issues priced.

"We lost a couple of days this week. With the holiday and then today, obviously, people didn't want to come in," he said.

The coming week is seen with a mix of issuers, also similar to this week.

OG&E, Ohio Power tighten

Issues priced Thursday from Oklahoma Gas & Electric Co. and Ohio Power Co. tightened 5 bps or more in the secondary Friday, a source said.

The 6.35% 10-year notes from OG&E priced at Treasuries plus 275 bps and were seen coming in to 270 bps bid, 260 bps offered in mid-afternoon trading.

The 5.75% five-year notes from Ohio Power priced at 290 bps and were seen tightening to 285 bps bid, 280 bps offered.

Secondary market weak

On a day that seemed like it was filled with nothing but bad news, the secondary market's tone started off negatively.

"Things were definitely a little sloppier, a little weaker," a secondary source said.

"It was definitely weaker this morning."

The source said this was nothing surprising, given the economic numbers that came out.

"We were kind of expecting it," he said.

Wrigley bonds tighten

The Wm. Wrigley Jr. Co., maker of gum and other sweets, saw its 4.65% notes due 2015 tighten more than 30 bps on Friday, a day after the company filed a definitive proxy statement for its merger vote with Mars, Inc.

Wrigley would be a stand-alone business under Mars, the maker of candy bars and other confections.

Another big mover was Morgan Stanley, whose 5.375% notes due 2015 widened more than 15 bps Friday.

This came after the investment bank downgraded troubled insurance company American International Group, Inc.

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