Japan Bank plans global bonds; market slows to crawl ahead of holiday

By Sheri Kasprzak

New York, Nov. 9 - Market action continued to falter on Friday ahead of the Veteran's Day holiday.

"It's absolutely dead," said one trader on Friday when asked about any deals pricing. "Some stuff is going on next week but I wouldn't expect to see anything until maybe Wednesday."

Another trader joked that people were rushing to get out the door Friday and that it has been a "ghost town."

"No one's getting anything done today," he said.

The Securities Industry and Financial Markets Association recommended an early close at 2 p.m. ET Friday ahead of the full close on Monday for the Veterans Day holiday.

Still, some upcoming deals were announced Friday, including an offering of guaranteed global bonds from Japan Bank for International Cooperation.

Citi, Deutsche Bank and Morgan Stanley are the joint bookrunners.

Additional terms for News Corp. notes

Elsewhere, additional terms on the previously announced $1.25 billion in senior notes from News Corp. were released Friday.

The 6.65% notes were priced Thursday at Treasuries plus 200 basis points.

The 30-year notes were originally expected to be sized at $500 million, were priced at par and were sold under Rule 144A.

New Corp. said in a statement released Friday that it plans to use the proceeds for general corporate purposes.

BofA to price preferreds

Bank of America Corp. may be in the market soon with an offering of non-cumulative preferred stock, the investment bank said late Thursday.

The terms of the deal were sill unavailable on Friday.

BofA, in a preliminary prospectus filed with the SEC, said it intends to sell series J non-cumulative preferred stock.

The preferreds have a liquidation preference of $25,000 each.

Banc of America Securities is the bookrunner.

Secondary quiet

In the secondary market Friday, "very little activity" was going on, a trader said. "There wasn't any new issuance, and I think people kind of shut the market down [Thursday] afternoon."

For the first time in several sessions, advancing issues outpaced decliners, by about a five-to-four ratio. But overall volume was less than half of what it had been on Thursday.

Thursday's new 30-year issue from Public Service Company of Oklahoma was seen having firmed smartly in aftermarket dealing, while the other new offering priced that session, News Corp.'s billion-dollar-plus mega-deal, pretty much stayed around its issue price.

Among the established names, there was little bond market reaction to the news that Merck & Co. had agreed to pay $4.85 billion to settle claims brought by people who said they had suffered serious negative side effects from its Vioxx pain-killer.

Financials continued to take it on the chin, buffeted by still more bad news - Friday morning's related to Wachovia Corp.'s intentions of taking more than $1 billion in writedowns of assets related to the subprime lending debacle. But while Wachovia's own bonds were not actively traded and did not move much, some bonds of other financial players like Bear Stearns and Lehman Brothers, were heard to have widened out sizably.

Meanwhile, credit-default swaps debt-protection costs initially rose for such financial firms as Lehman, Bear and Merrill Lynch, but later came back in, despite the continued bad news in the market.

Public Service higher

When the new 30-year bonds issued by Public Service Co. Of Oklahoma on Thursday were freed for secondary dealings, a trader saw those bonds as having tightened solidly - down to about the 193 bps bid, 187 bps offered over Treasuries level, in around 10 bps from their spread at issue of 200 bps.

However, he saw the new News Corp. 30-year bonds - which had also priced at 200 bps over - basically "straddling" the issue price at 202 bps bid, 198 bps offered.

Merck little changed

The trader saw "little activity" going on in Merck's debt on news of the Vioxx settlement. "I haven't seen any in them." He estimated that Merck bonds might be 5 bps wider, tops, on news of the multi-billion-dollar payout, but added "it's not like the world is coming to an end."

And despite the size of the payout, not everyone in the debt community necessarily thinks the deal is a drawback.

The Gimme Credit investment research service said that the deal "has eliminated a huge legal overhang. It doesn't tie up all the strings, but at a relatively modest cost puts much of this nightmare behind the company." It upgraded its assessment of Merck's credit score to stable from deteriorating previously.

Analyst Carol Levinson said in a research note that besides the problems common to large drug companies, like patent expirations and a pipeline that might not replace them, Merck in particular "lost its blockbuster drug with the Vioxx withdrawal [from the market] and faced potentially huge legal liabilities as well as diminishing margins. The announcement of a settlement affecting the vast majority of Vioxx claims is a huge positive development," she concluded.

Wachovia slips a little

And the trader saw not much activity in Wachovia paper - even as the fourth-largest U.S. bank said the value of its asset-backed collateralized debt obligations linked to subprime mortgages fell about $1.1 billion in October to $676 million. That pre-tax loss is in addition to a $347 million third-quarter loss, it said.

And Wachovia also expects to boost loan losses by $500 million to $600 million this quarter, blaming what it termed "dramatic declines" in housing values.

Despite that scary headline news - coming on the heels of similar announcements over the past few days and weeks from the likes of Citigroup, Merrill Lynch & Co and Morgan Stanley - Wachovia's bonds were seen not much traded.

The trader "guess-timated" that it could be wider by 5 bps to 10 bps, "but I don't think its 30 to 40 wider like we've seen in some of the other stuff in the past."

He said that there was "nothing drastic" going on, as Wachovia's news was already factored in by the market.

Some other financials weak

Some financial names did in fact move lower, not so much on actual news developments as on generalized investor worry about the sector

One was Bear Stearns, whose 6.40% notes due 2017 were seen having widened out to 283 bps, about a 16 bps deterioration from where they were on Thursday. On a dollar-price basis, the bonds fell just over 2 points in busy trading to end at about 95 bid.

Another big loser was Lehman, whose 6.20% notes due 2014 also were down somewhat more than 2 points, to just over 95.5. On a spread basis, they widened out to above 250 bps

Broker spreads narrow

A trader saw the CDS spreads on brokerage names having initially widened out by between 5 bps and 10 bps, but those spreads ended by coming back in to end below Thursday's levels.

He saw Bear Stearns' debt-protection cost at 160 bps bid, 170 bps offered, versus 170 bps bid, 180 bps offered in the morning and 165 bps bid, 175 bps offered Thursday. Other names followed suit, with Lehman's CDS spread at 145 bps bid, 155 bps offered versus 150 bps bid, 160 bps offered in the morning and 143 bps bid, 153 bps offered Thursday. Merrill Lynch was at 130 bps bid, 140 bps offered versus 140 bps bid, 150 bps offered in the morning and 135 bps bid, 145 bps offered on Thursday. And Morgan Stanley's CDS spread stood at 110 bps bid, 120 bps offered versus 120 bps bid, 130 bps offered in the morning and 115 bps bid, 125 bps offered Thursday.

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