High-volume week sees more than $21.6 billion new issues; pace could continue following stability

By Andrea Heisinger

Omaha, Sept. 7 - After two days of heavy investment-grade issuance, Friday had a much quieter tone with no new deals pricing, traders said.

The short week had more than $21.6 billion in new issues pricing, prompting market sources to declare the summer lull definitively over.

AstraZeneca plc had the largest new issue for the week, pricing $6.9 billion of notes in four tranches.

The company risked coming to the market as the first corporate European bond issuer in a month, but it paid off as the bonds were trading well, market sources said.

According to the London-based pharmaceutical company, it attracted strong demand for the bonds, which were sold to repay commercial paper used to finance the acquisition of MedImmune Inc.

The issue was originally planned as three tranches, but was upsized to four.

The number of issuers for the week totaled about 25, from corporations, banks and utilities.

Among the issuers more than $1 billion were Barclays Bank plc with $2.05 billion in five-year senior unsecured notes, Bank of America Corp. with $1.7 billion of notes in three tranches, Lowe's Cos. Inc. with $1.3 billion in three tranches, Nordic Investment Bank with $1.5 billion of global notes due 2010, Rohm & Haas Co. with $1 billion of notes in two tranches, and CSX Corp. with $1 billion of notes in two tranches.

Finance sector active

Financial institutions pricing deals this week were SunTrust Banks Inc. with $500 million in 10-year senior notes, HSBC Holdings plc with $750 million of 30-year global subordinated notes, KeyBank NA with $350 million in five-year senior notes, Wells Fargo & Co. with $250 million of senior unsecured notes due 2011 and American Express Credit Corp. with $500 million of two-year floating-rate notes.

Utilities and energy companies also priced new issues. Market sources said some were part of a backlog of deals due to recent volatile market conditions.

Commonwealth Edison Co. priced $425 million o f 10-year first mortgage bonds, EOG Resources Inc. priced $600 million in 10-year senior notes, Kentucky Power Co. priced $325 million in 10-year notes, Virginia Electric & Power Co. issued $600 million in 10-year senior notes, Texas Eastern Transmission Co. priced $400 million in 10-year notes and Husky Energy priced $750 million of notes in two tranches.

Other issuers for the week included National Retail Properties Inc. with $250 million of 10-year notes, Duke Realty Limited Partnership with $300 million in notes due 2018 and Starwood Hotels & Resorts Worldwide Inc., with $400 million of notes due 2013. Pitney Bowes Inc. priced $500 million in 10-year medium-term notes and Cargill Inc. priced $750 million of notes in two tranches.

One trader's prediction of one or two more new issues to end the week did not happen as news of companies cutting jobs affected the market Friday.

Spreads wider

Spreads were wider across the board, one market source said.

In secondary trading, two of the tranches of Lowe's issue from Thursday were trading a basis point or two tighter.

"Everything's sloppy today," a source said. "No one was really expecting anything."

The high new issue traffic should continue in the coming week, if the beginning of the week provides some stability, sources said.

"As long as there's no negative news, I think we'll see a lot more next week," a source said.

New B of A notes hold steady

In the secondary market, a trader said that "most of what I saw was pretty much focused on the new issues" which had priced during Thursday's new-deal binge, with Bank of America's three-part mega-deal in the spotlight.

He saw B of A's new 5 3/8% global notes due 2012 "basically trading right around issue," at a spread of 125/122 basis points, versus the 123 bps issue price.

B of A's new 6½% globals due 2037 were likewise seen at a spread of 177/173 bps versus the bonds' 175 bps issue price.

"That was most of what I saw," he said. "There was a little weakness in the market, but I think that had to do with digesting a lot of new issuance, and the strong rally in the Treasury market," which reacted to the unexpected news that U.S. non-farm payrolls shrank by 4,000 jobs in August - when analysts, on average, were looking for a gain of about 100,000 jobs. The poor employment numbers were seen increasing the chance that the Federal Reserve will cut key interest rates when its policy committee meets later this month, and that lifted government paper. The yield on the benchmark 10-year notes fell 14 bps to 4.38%, near the lowest since January 2006, while the yield on the two-year notes - which tend to be more sensitive to changes in monetary policy than longer-maturity debt, fell 20 bps to 3.90%., its second-largest gain in three years.

Financial sector quieter

While there was considerable movement in active trading on Thursday in banking and brokerage names - B of A's existing 6.10% notes due 2017 was seen down nearly 2 points on the session to around 101.375, while Merrill Lynch &Co.'s 6.40% notes due 2017 lost almost 2½ points to 101.375 - the trader said that in Friday's dealings, "I didn't see any big movement on any of the brokers, though they were definitely a little weaker today."

For instance, he said, the action of Banc of America Securities and Deutsche Bank Securities in cutting their earnings forecasts and share-price estimates for Bear Stearns Cos. Inc. - the second-biggest mortgage bond underwriter, hard-hit by the downturn in the mortgage industry - with B of A dropping its recommendation on Bear's equity to neutral from buy, "didn't look like it affected the bonds that much. I think a lot of that was built into the credit."

However, at another desk, Bear Stearns' 5½% notes due 2011 were seen down about 1 point to just around 98 bid.

Among other financial names, Merrill's 6.05% notes due 2012 were seen fairly actively traded, but a touch easier, at slightly above 102.

But Goldman Sachs Group's bonds were seen having firmed solidly in busy trading, with its 6¼% notes due 2017 quoted up 1 1/8 point around the 101.5 level, while its 5 5/8% notes due 2017 did even better, pegged up some 2¾ points to about the 98.625 level.

Genentech gets buyout buzz boost

Genentech Inc.'s bonds were seen firmer, though on very light trading, with its 4.40% notes due 2010 seen moving up to just under 99, a gain of nearly 2 points on the day, while its 4¾% notes due 2015 quoted up about 1¾ point, to just below the 96.375 level - again, on light volume.

There has been recent speculation in the financial blogosphere and on investment-oriented internet bulletin boards that, given Wall Street's liking for biotech names, the South San Francisco, Cal.-based company's 55% owner, Swiss drug giant Roche Holding Ltd., may decide to snap up the rest of it, with some observers seeing the current $80 per-share level as a bargain price.

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