Best Buy, KfW price; issuance likely done for week

By Andrea Heisinger and Paul Deckelman

Omaha, June 19 - Issuance continued to wind down Thursday, as companies like Best Buy Co., Inc. and KfW took advantage of what was likely the last day to bring anything into the market for the week.

Most sources said they were done for the week, although they couldn't rule out someone quietly issuing Friday as has been a trend in recent weeks.

In the investment-grade secondary market Thursday, advancing issues trailed decliners by a better-than five-to-four ratio, while overall market activity, reflected in dollar volumes, fell by 19% from Wednesday's pace.

Spreads in general were seen tighter, as Treasury yields moved higher; the yield on the benchmark 10-year issue, for instance, widened by 8 basis points to 4.21%.

Best Buy has few rivals

The issue from Best Buy benefited from little competition in the market for the day, a source said.

The company priced $500 million 6.75% five-year notes under Rule 144A.

They priced at 99.824 to yield 6.79% with a spread of Treasuries plus 312.5 basis points.

The issue went "very well," a source close to the issue said, although they could not say how oversubscribed it was.

The company is a somewhat infrequent issuer, they added, but has name recognition.

KfW brings $3 billion

Another issue for the day came from Germany's KfW, with $3 billion in 3.75% three-year global notes priced at 99.755.

Credit Suisse Securities, HSBC Securities and RBC Capital Markets were bookrunners.

An issue of junior subordinated debentures from Constellation Energy Group, Inc. was announced in a 424B5 Securities and Exchange Commission filing Thursday.

Three sources close to the issue, which is being handled off the preferred desk, said late in the day that they did not know if it had priced.

The 60-year debentures will price at $25.

Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Inc., Morgan Stanley & Co., Inc., UBS Investment Bank and Wachovia Capital Markets are running the books.

Favorable tone

Market conditions are good enough leading into Friday for there to potentially be an issue or two, a source said, but that doesn't mean there will be.

"I don't know, there have been some crazy Fridays lately, but I think it's summer now and people aren't going to be issuing at the end of the week as much," he said.

Headlines about former Bear Stearns employees and Washington Mutual job cuts were of more interest than much of what was going in the market Thursday, a source said.

The coming week should see about the same humble amount of issuance as this week, with supply dwindling, high yields and companies wary of entering the market contributing to the slowdown.

"There's only so much issuance out there, and we already saw a lot of it a month or two ago," a source said.

Vulcan tightens

Several recently priced deals were seen actively moving around on Thursday, notably Vulcan Materials Co.'s 6.30% notes due 2013, $250 million of which priced at a spread over Treasuries of 270 bps on Tuesday; they were quoted Thursday having come in to 258 bps over. The company also priced $400 million of 7% notes due 2018 that same session at 280 bps over.

Time Warner Cable's new 6.20% notes due 2013 were seen trading at 223 bps over - well in from the 250 bps over level at which the cable operator priced $1.5 billion of the bonds on Monday, along with $2 billion of 6.75% notes due 2018, which also priced at 250 bps over, and $1.5 billion of 7.30% notes due 2038, which priced at 255 bps over.

The company's established 5.85% notes due 2017 were seen at 246 bps over.

Suncor Energy Inc.'s 6.1% notes due 2018 traded at 187 bps over, well in from the 223 bps over at which those $1.25 billion of bonds priced on June 3, along with $750 million of 6.85% bonds due 2039, which priced at 230 bps over.

KeyCorp, Zions plummet

Elsewhere, troubled regional banker Key Corp.'s 6.50% notes due 2013 were seen having jumped out by more than 70 bps to about the 500 bps over mark. Another regional, Zions Bancorp, ballooned out by about 40 bps to that same 500 bps area.

But Bank of New York Mellon's 4.95% notes due 2011 tightened some 15 bps to end at 85 bps over Treasuries.

Bond insurer Radian Group's nominally investment-grade rated 7¾% notes due 2011 fell 6 points to 73 bid, 75 offered, in line with a plunge in its shares, which fell in tandem with other bond insurance stocks.

Gross likes banks

Despite those troubles, the financial sector got a boost on Thursday on the news that one of the most influential fund managers in the business has not given up on major bank bonds. Bill Gross, the chief investment officer of Pacific Investment Management Company and manager of the $130 billion Pimco Total Return Fund - the world's largest bond fund - said Thursday that he still holds corporate debt of such companies as Citigroup Inc., Morgan Stanley and Goldman Sachs.

Notwithstanding the well-publicized problems of the sector - most big banks have taken writedowns now collectively totaling in the hundreds of billions of dollars as a result of the year-long credit crunch, and even such stronger names as Goldman have seen their profits crimped versus year-ago levels - Gross called the big-bank debt "high quality" and said it still offered much value.

In the credit-default swaps market, a trader saw the debt-protection costs of both the large banks and the major brokers having widened out by 5 to 10 bps on the day.

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