Philip Morris, Duke Energy, AT&T, Georgia Power issue in time crunch; spreads wider; new Diageo deal gains

By Andrea Heisinger and Paul Deckelman

New York, Nov. 12 - A window opened in the new issue market Wednesday, allowing companies like Philip Morris International Inc., Duke Energy Carolinas, LLC, AT&T Inc., and Georgia Power Co. to price new deals.

Sources were unsure how long the relatively strong stream of new issues would last, noting that most were not issuing due to favorable market conditions.

In the investment-grade secondary market Wednesday, advancing issues led decliners by an eight-to-seven ratio. Overall market activity, reflected in dollar volumes, was more than double Monday's restrained pre-holiday pace.

Spreads in general were seen wider, in line with solidly lower Treasury yields; for instance, the yield on the benchmark 10-year notes fell 10 basis points to 3.64%.

Wednesday's newly priced issues from AT&T Corp. and from Duke Energy Carolinas were seen to have tightened modestly after they were freed for trading - a change from the recent trends of new bonds that priced to cheaply shooting up by multiple points and tightening markedly in the aftermarket.

But Diageo Capital's re-opened 2014 notes did continue to firm smartly from their issue price.

Philip Morris does $1.25 billion

The tobacco spinoff of Altria, Philip Morris International, priced $1.25 billion of 6.875% notes due 2014 late Wednesday, a source said.

The notes priced at 99.512 to yield 6.989% with a spread of Treasuries plus 467.5 basis points.

Although the issue was announced early in the morning, it "pretty much went across the whole day," the source said.

"It was delayed pretty much due to due diligence," he said.

Despite the late pricing, it went well, he added.

Citigroup Global Markets Inc., Deutsche Bank Securities and Goldman Sachs were bookrunners.

AT&T prices five-years

Telecommunications company AT&T raised $1.5 billion in a single tranche of 6.7% five-year notes. They priced at 99.825 to yield 6.741% with a spread of Treasuries plus 437.5 bps.

This was in line with price talk of 437.5 bps, a source close to the deal said.

Credit Suisse Securities, J.P. Morgan Securities, RBS Greenwich Capital and Wachovia Capital Markets ran the books.

Duke Energy prices two tranches

Duke Energy Carolinas, a subsidiary of Duke Energy Corp., priced $900 million of first and refunding mortgage bonds Wednesday.

The deal included $400 million 5.75% five-year bonds priced at 99.769 to yield 5.804% with a spread of Treasuries plus 345 bps.

The $500 million tranche of 7% 10-year bonds priced at 99.71 to yield 7.041% with a spread of Treasuries plus 340 bps.

Bookrunners were Barclays Capital Inc., Citigroup and Credit Suisse.

Georgia Power does two deals

Georgia Power priced two separate issues, one of five-year notes and one of 40-year notes.

The $400 million of 6% five-year senior notes priced at 99.936 to yield 6.016% with a spread of Treasuries plus 360 bps.

Bookrunners for this deal were Banc of America Securities LLC, Goldman Sachs and Barclays.

The second issue was $100 million of 8.2% 40-year senior notes priced at par of $25 to yield 8.2%. They are callable after five years.

Citigroup, Morgan Stanley and UBS Investment Bank were bookrunners.

Issuers see window

Companies took a leap Wednesday and priced deals despite worsening market conditions and a sinking stock market.

"Things weren't pretty out there today," a source said.

Another source said that "people saw a window and wanted to hop into it before the Thanksgiving break."

Conditions were not the greatest following last week's weakness and a continued downturn over the last couple of days, he said.

The reality of time running out for some issuers has urged them into pricing during conditions they never would have thought of braving in the past, he added.

Wednesday saw the largest number of issuers, but not volume, since Sept. 3, a source said.

As another source said, it was not due to positive market conditions. In reality, the stock market was down for the third day in a row as more companies, such as electronics giant Best Buy, looked to the future with negative outlooks.

"They're just thinking they're running out of time," a source said, citing the upcoming Thanksgiving holiday.

"Then you have Christmas and then you're getting into 2009."

Although one source referred to the opportunity as a "little window," he agreed that the success and number of the day's issues will likely encourage at least one or two companies to price Thursday.

"Of course you never know," he said. "We're just guessing."

No activity in Philip Morris, Georgia Power

In the secondary, the new Philip Morris 6.875% notes due 2014 priced too late in the session for any meaningful aftermarket activity.

Likewise, a trader said that although he had heard that the Georgia Power five-year and 40-year deals had priced he had not seen any of the new bonds trading.

Duke deal better

But Duke Energy Carolinas, on the other hand, did trade in the secondary market, and the spreads on its new bonds were seen having tightened 5 bps against comparable Treasuries.

The trader saw Duke's $400 million of 5.75% notes due 2013 trading at 340 bps bid, in by 5 bps from the 345 bps level at which it had priced earlier.

He also saw the new Duke $500 million of 7% notes due 2018 improve to 335 bps from the 340 bps level at which the notes had priced.

Telephone bonds tighten

Also seen tighter were AT&T's $1.5 billion of new 6.70% notes due 2013. The Dallas-based telecommunications giant's bonds had priced at 437.5 bps over Treasuries, and were seen later on having tightened slightly to 435 bps over.

"We're seeing some stabilization" in the investment-grade market, the trader said, noting that the deals were trading not far from their respective issue prices - in sharp contrast to a number of other recent deals which had tightened sharply when they moved over to secondary - a sign, market-watchers said, that the bonds had probably been priced too cheaply in the first place just to get the deal done in the currently uncertain markets.

Diageo continues to move up

However, old habits die hard. Diageo Capital's reopened 7.375% notes due 2014, an upsized $500 million of which had priced on Friday at 435 bps over, were seen having traded Monday around the 420 bps bid, 415 bps offered level - and on Wednesday, the trader said, they continued to firm, to bid levels as low as 405 bps.

Financials mixed on latest bailout news

The news that the federal government has abandoned plans to buy the toxic assets on the books of many banks and other financial companies seemed to have relatively little impact on existing financials, which were seen mixed.

Citigroup's 5.625% notes due 2012 were seen having narrowed about 25 bps to around the 620 bps mark, but its 5.30% notes due 2012 were out nearly 50 bps at the 470 bps mark. Among the most active issues, Citi's 6.50% notes due 2013 were trading at around 490 bps over, while its 8.4% perpetual notes were at 740 bps, out about 35 bps from Monday's level.

Likewise, Bank of America Corp.'s 4.375% notes due 2010 widened by some 30 bps to the 350 bps mark - but the Charlotte, N.C.-based banking giant's 4.90% notes due 2013 were 20 bps tighter at 350 bps. B of A's floating-rate perpetual were actively traded at about 590 bps.

Morgan Stanley's quite actively traded 6.75% notes due 2011 tightened by some 45 bps to end at 635 bps, a market source said.

Debt-protection costs mixed

In the credit-default swaps market Wednesday, a trader saw the debt-protection costs for bonds issued by major banks 3 bps to 8 bps wider.

He also saw CDS costs for big-brokerage paper mixed, with Morgan Stanley's 10 bps tighter, but Goldman Sachs' and Merrill Lynch's contracts 10 bps wider on the day.

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