McDonald's, Honeywell, PG&E, ING, SunTrust, KfW, UST, Fifth Third price; jammed calendar ahead

By Andrea Heisinger and Paul Deckelman

Omaha, Feb. 26 - A rush of new investment-grade issues hit the market Tuesday, including deals from McDonald's Corp., Fifth Third Bancorp, Honeywell International Inc., UST Inc., Pacific Gas & Electric Co., ING Bank NV, Toyota Motor Credit Corp., SunTrust Capital IX and KfW.

In the investment-grade secondary market Tuesday, advancing issues led decliners by about a seven-to-six ratio, while overall market activity, reflected in dollar volumes, was up around 24% from Monday's level.

With a whole slew of new deals pricing during the session, trading activity was focused on those offerings as well. Honeywell's new two-part deal was heard to have firmed a little from the levels at which it had priced.

There was also a fair volume of activity among issues which had priced on Monday including Whirlpool Corp., PECO Energy and Hewlett-Packard Co.

International Business Machines Corp. released upwardly revised per-share guidance, which helped its bonds firm a little.

MBIA Inc.'s debt protection costs, which had tightened markedly on Monday, were in only an additional little bit on Tuesday.

McDonald's 'always a darling'

McDonald's priced $2.25 billion in three tranches.

The $500 million 4.3% five-year notes priced at 99.835 to yield 4.337% at a spread of Treasuries plus 145 basis points.

The tranche priced at talk of the 145 bps area.

The $1 billion of 5.35% 10-year notes priced at 99.992 to yield 5.351% at a spread of Treasuries plus 148 bps.

This was on the tight end of talk of the 150 bps area.

The $750 million of 6.3% 30-year notes priced at 99.532 to yield 6.335% with a spread of Treasuries plus 168 bps.

This tranche also came at the tight end of price talk of the 170 bps area.

Citigroup Global Markets Inc. and Morgan Stanley & Co. Inc. were bookrunners.

The issue went well, which one source close to the deal said wasn't surprising due to name recognition.

"Well, McDonald's is one of those names that is always a darling," he said. "People always love to buy McDonald's paper. People are always going to eat at those places. It priced tight and the company was really happy."

Honeywell brings $1.5 billion

Honeywell priced $1.5 billion in two tranches.

The $600 million of 4.25% five-year notes priced at 99.47 to yield 4.369% with a spread of Treasuries plus 147 bps.

The $900 million of 5.3% 10-year notes priced at 99.639 to yield 5.347% with a spread of Treasuries plus 147 bps.

Barclays Capital Inc., Banc of America Securities LLC and Citigroup were bookrunners.

PG&E oversubscribed

Pacific Gas & Electric priced $600 million in two tranches.

The company reopened its 5.625% 10-year notes to add $200 million.

They priced at 101.55 to yield 5.417% with a spread of Treasuries plus 155 bps.

Total issuance is now $700 million including $500 million sold Nov. 28, 2007.

The company also priced $400 million 6.35% 30-year notes at 99.858 to yield 6.361% at a spread of Treasuries plus 170 bps.

This was tighter than price talk of 175 bps, a source close to the deal said.

Goldman Sachs & Co., Lehman Brothers Inc. and UBS Investment Bank were bookrunners.

"It was way oversubscribed," the source said. "Overall it was a good deal. It got done tighter than we thought."

UST, ING, KfW bring deals

Smokeless tobacco and wine company UST priced $300 million of 5.75% 10-year senior notes at 99.632 to yield 5.799% with a spread of Treasuries plus 193 bps.

Lehman Brothers and Morgan Stanley ran the books.

ING priced $1.25 billion of six-year extendible floaters in a Rule 144A deal.

They priced at par with a final coupon of three-month Libor plus 32 bps.

Merrill Lynch and Morgan Stanley were bookrunners.

German bank KfW priced $3 billion of 4.375% 10-year notes at 99.213.

Bookrunners were Goldman Sachs, J.P. Morgan Securities Inc. and Merrill Lynch.

Fifth Third upsizes

Fifth Third Bank priced $1 billion of 8.25% 30-year subordinated notes at 99.748 to yield 8.273% with a spread of Treasuries plus 362.5 bps.

Credit Suisse Securities LLC, Goldman Sachs, Merrill Lynch and Morgan Stanley were bookrunners.

SunTrust priced its trust preferred securities that were announced Monday.

The bank priced $600 million of 7.875% 60-year preferreds at par of $25. They are non-callable for five years.

The issue was increased from $200 million.

Morgan Stanley, Citigroup, SunTrust Robinson Humphrey and UBS were bookrunners.

Toyota Motor Credit priced $250 million of two-year floaters at par to yield three-month Libor plus 4 bps.

Agent was J.P. Morgan Securities Inc.

Biogen announces

An issue from Biogen Idec Inc. was announced but did not price.

The issue is in five and 10-year tranches of senior notes.

Pricing will likely take place Wednesday, a source close to the deal said.

Bookrunners are Goldman Sachs and Merrill Lynch.

More deals expected

The stream of new issues will likely not stop any time soon, sources said.

"There's no stopping in sight," a market source said. "Other than Friday I don't see a day on the calendar that's not jammed tight. Even next week and possibly the week after that are busy."

Issues like that from McDonald's are pricing on a flat spread curve, a source said.

"I think they paid up a big chunk to get that one done," he said.

The source noted the market is seeing a lot more five and 10-year notes getting done on top of each other.

He noted the Honeywell deal where the five and 10-year tranches priced at the same spread to Treasuries.

This is because of a steep Treasury curve, which at midday was sitting at about 95 bps for the difference between five- and 10-year governments.

The companies don't have to pass it on to investors, and at some point spreads may be inverted, he said.

Still, continued stability and a string of successful issues should keep the new issues coming.

"We're just going to see a constant flow continue," a source said.

New Honeywell bonds tighten

A trader saw Honeywell's new 5.30% notes due 2018 trading at a spread over comparable Treasuries of 143 basis points bid, 139 bps offered, while its 4.25% notes due 2013 were at 143 bps bid, 141 bps offered, "basically on top of each other." Both tranches had priced at a spread of 147 bps earlier in the session.

The trader saw UST's new 5.75% notes due 2018 initially trading in the grey market at 193 bps bid, 183 bps offered, versus the 193 bps spread at pricing.

Monday's issues move up

Among the issues which priced on Monday, Whirlpool's 5.50% notes due 2013 were seen having improved to 248 bps bid, 243 bps offered versus their 260 bps spread at pricing.

The trader saw PECO Energy's new 5.35% notes due 2018 at a tight 146 bps bid, 145 bps offered level, not much changed from their spread at pricing of 147 bps.

And he saw Hewlett-Packard's three tranches of new bonds "all over the map today." He saw the 5-year notes and the 10-years each trading at 153 bps bid, 148 bps offered, "trading basically right on top of each other." The five-years came in from their 157 bps spread at pricing, while the 10-years were in from a 162 bps pricing spread.

IBM a bit improved

The trader saw IBM's 2017 bonds trading at 150 bps over, a bit tighter from earlier levels as wide as 157 bps, after Big Blue released an improved 2008 outlook. However, he said that the bonds were "still a little bit weaker" from levels around 145 bps the other day.

The Armonk, NY-based computer giant now expects earnings per share to exceed $8.25 this year - up from its prior expectations of $8.20 to $8.30.

Bond insurers mostly steady

Among the monoline bond insurers, whose credit-protection costs had tightened markedly on Monday when Standard &Poor's declined to downgrade MBIA and Ambac Financial Group Inc., a trader saw little real movement Tuesday, although he did estimate that MBIA's credit-default swap spreads were "a little better, maybe 10 bps tighter," which would put its AA's CDS cost at 685 bps bid, 725 bps offered and its AAA CDS cost at 330 bps bid, 350 bps offered.

Another trader meantime saw MBIA's 14% notes due 2033 - which have been trading in the junk market despite their nominal high grade ratings - having come all the way back from its recent depths as low as 70; he saw them get as good as 101.5 bid, 103.5 offered, up from 96 bid, 97 offered on Monday.

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