IBM, Bank of America, Export Development Canada, M&T price amid benign tone; financials strong

By Andrea Heisinger and Paul Deckelman

Omaha, Jan. 24 - A small number of new investment-grade issuers crept into the market Thursday, including IBM International Group Capital LLC, Export Development Canada, Bank of America Corp. and M&T Capital Trust IV.

In the investment-grade secondary market Thursday, declining issues outnumbered advancers by a five-to-four ratio. Overall activity, reflected in dollar volume, rose 13% from Wednesday's levels.

Financial issues remained firm, including gainers such as Bank of America, Merrill Lynch and Lehman Brothers.

However, credit-default swaps contracts protecting the debt of bond insurers MBIA Inc. and Ambac Financial Group Inc. were seen to have widened out, as the state of near euphoria that swept the sector Wednesday on the news that New York insurance regulators and major banks were in talks on crafting a capital infusion for the battered insurers receded as the state's insurance chief said that working out such an arrangement would likely take some time.

Elsewhere, Sprint Capital's bonds were firmer, probably helped by the news that wireless phone industry leader AT&T had posted good earnings - a sign that the industry is healthy.

Export Development brings $1.25 billion

Export Development priced an upsized $1.25 billion of 2.625% three-year bonds at 99.585 to yield 2.765% at a spread of Treasuries plus 57.5 basis points.

The issue was increased from $1 billion, and is non-callable.

BNP Paribas Securities Inc., HSBC Securities, RBC Capital Markets and Toronto-Dominion Bank were bookrunners.

IBM priced $3.5 billion of 18-month floating-rate notes at par to yield Libor plus 34 bps. This was slightly tighter than price talk which was Libor plus 35 bps, a source said.

Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Lehman Brothers Inc. and Morgan Stanley & Co. ran the books.

M&T sells $350 million trust preferreds

Another issue came from a unit of M&T Bank Corp.

It priced an upsized $350 million, or 14 million shares, of 8.5% trust preferred securities at par of $25.

The issue was increased from $200 million and 8 million shares, a source said.

Bookrunners were Citigroup Global Markets Inc. and UBS Securities LLC.

BofA upsizes

Bank of America announced Wednesday it would issue straight and convertible preferred stock to raise money.

The amount it did sell was double the original $6 billion, totaling $12 billion, due to strong investor interest.

The company priced $6 billion of fixed to floating non-cumulative perpetual preferred stock.

It will pay a dividend of 8% twice per year for 10 years, and then at a floating rate of three-month Libor plus 363 quarterly.

The company also priced $6 billion in convertible preferred stock.

Banc of America Securities LLC was bookrunner.

Deal volume disappoints

Despite relatively stable market conditions, there weren't as many issuers as some may have predicted.

"I expected a lot more today," a source said. "The market was pretty benign and the stock markets aren't getting kicked around."

New issues are likely finished for the week, sources said, with nothing planned for Friday.

"We're probably done, as Fridays are usually slow," a source said.

Predictions of a quiet week largely came true, and one source said he was surprised at the amount that managed to make it into the market despite volatile conditions earlier in the week.

"More came to the market than I would have thought," the source said. "Given the way things looked it's amazing we've seen what we have."

Bond insurers widen on likely plan delay

CDS swaps for beleaguered bond insurers MBIA and Ambac Financial Group were seen to have widened out Thursday, in line with a fall in the companies' shares, after New York's top insurance regulator, Eric Dinallo, said that crafting a rescue mechanism for the bond guarantors is replete with "complicated issues" and "is going to take some time."

That's bad news for markets that were hoping for quick action to provide Ambac, MBIA and other companies in the sector with up to $15 billion of fresh capital - according to one news report - that would enable them to avoid credit ratings downgrades that would make it difficult if not impossible for issuers to trust their guarantees.

As if to underscore the point, a smaller insurer - Security Capital Assurance Ltd. - lost its AAA bond insurer grade at Fitch Ratings Thursday, putting the rankings of at least $154.2 billion of securities in doubt. Fitch also downgraded Ambac from AAA earlier this month; meanwhile, Moody's Investors Service is eyeing MBIA and Ambac for possible downgrades.

Against that sobering backdrop, a market source said MBIA's CDS spread cost widened to 12.5% upfront and 500 basis points annually from 12% upfront and 500 bps annually on Wednesday.

Ambac's debt-protection cost widened to 14.5% upfront and 500 bps annually from 13% and 500 bps on Wednesday. The upfront component of both companies' debt-protection costs had narrowed on Wednesday from levels around 30%, on the news that talks on a rescue plan were in the works.

Bank CDS tighter

Elsewhere, a trader said that major bank CDS costs had narrowed anywhere from 1 bp to 8 bps for most names; however Wachovia Bank widened out by 8 bps to about the 188 bps bid, 203 bps offered level. Thrift Washington Mutual's CDS cost was seen 25 bps better at 335 bps bid, 355 bps offered.

In the cash bond market, Merrill Lynch's 4.25% notes due 2010 had narrowed about 30 bps to the 230 bps level. In by about the same among were such securities as Bank of America's 6.50% bonds due 2037, trading at the 195 bps level, and Lehman's 6% notes due 2012, quoted at 235 bps over.

Sprint strong

Outside of the financials, Sprint's bonds, like its 8.75% issue doe 2032, were seen some 30 bps tighter to about the 450 bps over level; the Kansas City, Mo.-based Number-Three U.S. wireless provider was seen drawing strength from the good numbers larger rival AT&T posted - profits attributable largely to a brisk new addition of new wireless customers, even in the face of a slowing economy.

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