Export Development prices, headlines still worry issuers; new L-3s weaker, financials slump

By Andrea Heisinger and Cristal Cody

New York, May 20 - Export Development Canada was the lone issuer in the high-grade market on Thursday as the tone continued to sour on economic news from both the United States and abroad.

The trade finance service provider EDC priced $1 billion of five-year notes in line with guidance.

Headlines again dominated what was priced, with continued worries about debt in the eurozone, the Gulf of Mexico oil spill and the financial reform bill working its way through Congress.

By the end of the day, sources were not speaking positively about the market, and said that most issuers will wait until the coming week to sell bonds.

L-3 Communications Corp.'s 4.75% senior notes due 2020 that were sold two days earlier moved out more than 10 bps in Thursday's secondary market, a trader said.

The financial sector and bank paper from Goldman Sachs Group Inc., Bank of America Corp. and Citigroup Inc. also were wider, according to sources.

"Corp spreads are wider," a trader said. "Fears that euro debt problems will hurt U.S. banks holding euro debt [are] weighing on bank and finance offerings."

Also in investment-grade, the CDX Series 14 North American high-grade index eased 9 bps to a mid bid-asked spread level of 123 bps, a source said.

Overall investment-grade Trace volume fell 11% to about $10.4 billion, according to a market source.

Treasuries were tighter on Thursday as investors flocked to saver investments on the economy and eurozone debt crisis.

Yields firmed, with the yield on the 10-year note at its lowest this year.

"Treasuries loving it all - safe haven," a trader said late Thursday.

Yields on the 10-year benchmark note fell 12 bps to 3.25%, the lowest level since December. Yields on the 30-year bond eased 12 bps to 4.13%.

Export Development sells five-years

Export Development Canada priced $1 billion of 2.25% five-year notes (Aaa/AAA) by mid-afternoon to yield Treasuries plus 32.6 bps, a source close to the sale said.

They were talked in the range of mid-swaps plus 3 to 5 bps, and priced tighter than that at mid-swaps plus 2 bps.

Bookrunners were Bank of America Merrill Lynch, Citigroup Global Markets, Deutsche Bank Securities and TD Securities.

The issuer provides trade finance services for exporters and investors and is based in Ottawa, Ontario.

Sentiment stays depressed on headlines

The tone of the primary high-grade market has been subdued for much of the week, and was not looking good by the end of Thursday, sources said.

"I would call it ugly," one market source said.

Issuance largely dried up after a fairly steady stream of deals for the first half of the week. The only new issue Thursday was a sovereign sale by Export Development Canada.

The stock market sunk by the end of the day, and the bond market was on the same course.

"I would say they were about the same in terms about how people were feeling," a syndicate source said.

Despite the feel of the market, interest rates remain attractive and it is likely more companies will tap the market in the coming week.

"I just think supply is down," the syndicate source said. "Everyone probably watched [the headlines] and didn't want to issue anyway."

Financials wider

The financial sector and bank stocks were weaker on Thursday, according to sources.

For example, New York-based Citigroup's 8.5% notes due 2019 eased 17 bps to 297 bps, a source said.

Goldman's debt, such as its 5.375% notes due 2020, also widened in trading, one source said. The 10-year notes moved out 13 bps to 245 bps over Treasuries Thursday afternoon.

The Securities and Exchange Commission has filed civil fraud charges against New York-based Goldman, which also is under a criminal investigation by the Justice Department over subprime mortgage securities investments.

Elsewhere in financials, Charlotte, N.C.-based Bank of America's 7.625% notes due 2019 traded 9 bps weaker at 259 bps on Thursday, compared to 250 bps the day before.

L-3 moves out

L-3 Communications' 4.75% senior notes due 2020 widened considerably in Thursday's market session, a trader said.

New York-based L-3, the sixth largest defense company in the United States, priced $800 million of the notes on Tuesday at Treasuries 138 bps.

The notes were basically unchanged in trading on Wednesday at 140 bps bid, 137 bps offered. But by late afternoon on Thursday, the notes had widened to 155 bps bid, 145 bps offered.

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