Week of nearly $4 billion ends on quiet note; Freddie Mac announces future issue

By Andrea Heisinger and Paul Deckelman

Omaha, July 18 - The week went out on the quiet note that persisted despite better-than-expected earnings from Citigroup and fair market conditions.

No issues were expected to price Friday, and sources said that was exactly what happened.

"Really, it had nothing to do with the market," a source said. "There just wasn't anyone to issue anything."

In the investment-grade secondary market Friday, advancing issues trailed decliners by a seven-to-five ratio, while overall market activity, reflected in dollar volumes, was little changed from Thursday's pace.

Spreads in general showed were seen tightening, in line with higher Treasury yields; for instance, the yield on the benchmark 10-year issue rose 9 basis points to 4.08%.

Week ends at $4 billion

There was news to be had Friday, on the tail of a week of roughly $4 billion in new issues. Much of this amount came into the market Monday with a $1.3 billion in notes from Walgreen Co., which was its first offering in recent years.

Other issuers during the week included Pacificorp, Entergy Arkansas Inc., CRH America, Inc., Royal Bank of Canada and PPL Energy Supply.

Freddie, Teva on the horizon

Upcoming issues were announced, including those from Freddie Mac and some resulting from the acquisition of Barr Pharmaceuticals, Inc. by Teva Pharmaceutical Industries Ltd.

In a press release announcing it is now a Securities and Exchange Commission registrant, Freddie Mac also announced it will raise $5.5 billion in new core capital through one or more offerings of common and preferred securities.

The timing, amount and mix of the offering is dependent on market conditions and other factors.

The company also announced in a separate 8-K SEC filing that it's not immediately planning to raise capital due to current market conditions.

These announcements come on the heels of the government's bailout of Freddie Mac and Fannie Mae at the beginning of the week.

The Teva acquisition of Barr was announced Friday, amounting to a deal worth $7.46 billion in common stock and $1.5 billion in net debt.

In a press release, the companies stated that in addition to cash at hand, the company would also tap the long-term debt market to handle a part of the funding.

The companies had a conference call Friday, but no details were given about the timing of form of the long-term debt.

Those from Teva and Barr that spoke in the conference call said that some details will not be decided or announced until the deal is completed in the first quarter of 2009.

Week's prospect unclear

The coming week is once again uncertain, despite an end of the week that was less gloomy than in previous days.

"The market is doing OK, but we'll just have to see how things look Monday at the open," a source said.

"We didn't see anyone today, but that's not unusual. We could not see anything Monday, too."

Some financial names coming out of blackout are possibilities to tap the market, sources said.

"You know some of those that had write downs are going to need to raise some money," a market source said.

Citi gains on results

Citigroup's earnings report was a key development that players in the financial sector were watching, and when its loss turned out not to be as large as expected, the sector drew some strength.

A market source saw Citi's 8.40% notes due 2018 as having come in by 25 bps to a spread over comparable Treasuries of about 520 bps.

Another source saw the company's 5% notes due 2014 trading at 303 bps over, in from 320 bps earlier in the week. However, its 4.125% notes due 2010 were seen trading at 276 bps over, about 20 bps wider.

Citigroup reported a second-quarter loss of $2.5 billion, or 54 cents per share, including a $7.2 billion before-tax write-off, and total write-downs and credit losses of $11.7 billion. Despite all of that red ink, and even though the banking giant slid into the red from a year-ago profit of $6.23 billion, or $1.24 per share, Wall Street took heart from the numbers - because analysts generally were expecting Citi to post about a 65 cent-per-share loss.

Other financials seen gaining after the Citi numbers included Wachovia Corp., whose 7.98% notes due 2018 firmed by 25 bps to around the 720 bps mark, and Barclays Bank, whose 5.45% notes due 2012 tightened by 20 bps to the 190 level.

On the other hand, Wells Fargo & Co. - whose bonds had firmed after that bank reported relatively favorable numbers earlier in the week - gave back some of those gains. Its 5.25% notes due 2012 were trading about 10 bps wider, at 225 bps.

In the credit default-swaps market, a trader said that the cost of protecting big-bank and major brokerage debt both narrowed between 5 bps and 16 bps on the day, a sign of increased investor confidence in the sector.

He saw Citigroup's CDS cost tighten by 12 bps to 152 bps bid, 162 bps offered.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.