Pfizer plans mega deal; Progress Energy, Smith International sell bonds; financials tighten

By Andrea Heisinger

New York, March 16 - All eyes in the high-grade bond market were on an evolving offering from Pfizer Inc. Monday, which is going overnight to price. The primary market was not barren and saw pricings from Smith International Inc. and Progress Energy Inc.

Spreads were generally tighter late in the day as Treasury yields were seen wider. The 10-year note, for example, was up 6 basis points to yield 2.95%.

The secondary was not particularly busy, even on the non-financial side, a trader said. Tuesday will likely be busier with trading of the Pfizer notes.

Pfizer plans mega deal

Pfizer is planning to sell a large offering of notes in five tranches, with pricing expected Tuesday, market sources said.

The deal consists of four fixed-rate tranches due 2012, 2015, 2019 and 2039. A tranche of two-year floating-rate notes was also added.

It is expected to total up to $10 billion, a source said.

Price talk evolved throughout the day, starting in the low 300 bps over Treasuries for all of the fixed-rate tranches. By the end of the day, talk on the six-, 10- and 30-year tranches had widened.

The three-year tranche is talked at 310 bps over Treasuries. Guidance for the six-year notes was in the 345 bps area, up from the 330 bps area, and the 10-year tranche was also up, to the 330 bps area from 320 bps. The 30-year notes guidance was also higher at the 350 bps area, up from 330 bps over Treasuries.

The floaters are talked at three-month Libor plus 200 bps, plus or minus 5 bps.

Pfizer demand high

There is plenty of demand for the notes at their spread talk, a source said.

Another source backed this up, saying there was "$20 billion on the pad" so far.

"I guess it got too late in the day and had to go overnight," a syndicate source said. "It's interesting it turned into a two-day deal. Those never seem to work out."

The spreads are not considered high for the company, a source said, adding "everybody thinks it's in line given investor feedback and interest."

Pfizer, the pharmaceutical company based in New York City, carries an AAA rating.

Bookrunners are Banc of America Securities LLC, Barclays Capital Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. and J.P. Morgan Securities Inc.

Proceeds will be used for general corporate purposes, including funding a portion of the purchase price of the Wyeth acquisition and refinancing existing debt. Proceeds may also be temporarily invested in short-term marketable securities.

Progress Energy sells two tranches

Progress Energy, an integrated energy provider based in Raleigh, N.C., priced two tranches of notes totaling $750 million.

The $300 million of 6.05% five-year notes sold at Treasuries plus 420 bps, while the $450 million of 7.05% 10-year notes priced at Treasuries plus 415 bps.

Both tranches priced at the tight end of talk, a source close to the deal said. The five-year notes had guidance in the 425 bps area, and the 10-year notes were talked in the 420 bps area. They had a margin of plus or minus 5 bps.

Books were well-oversubscribed at $4 billion, he said.

They are using the proceeds to fund utility subsidiaries' capital expenditures through equity contributions.

Wachovia Capital Markets and Banc of America Securities ran the books.

Smith prices $1 billion

Oil and natural gas drilling and equipment company Smith International sold $1 billion of bonds in two tranches that priced flat.

The deal consisted of $300 million of 8.625% five-year notes and $700 million of 9.75% 10-year notes, both priced at Treasuries plus 680 bps.

The Houston-based company is using proceeds to help repay all of a $1 billion senior unsecured bridge loan facility used to fund an acquisition, and to repay debt under a revolving credit facility.

JPMorgan, Calyon Securities, Banc of America Securities and Wachovia Capital Markets were bookrunners.

All eyes on Pfizer

Although there will likely be other deals pricing Tuesday, all eyes will be on the Pfizer sale, which is expected to be large.

"I think that's what the focus is right now," a source away from the sale said. "It's just another one of these big deals from the drug companies."

The tone Monday was "good," a market source said, noting that it was a "go day for calls."

It's unclear how much issuance will come out this week, but the Pfizer sale will bump up the volume considerably.

Progress Energy bonds tighten

The new note issue in two tranches from Progress Energy was seen tightening, with the shorter bond doing slightly better.

The 6.05% notes due 2014 were trading at 403 bps bid, 402 bps offered, a trader said. This was nearly a 20 bps tightening from the 420 bps price over Treasuries.

The 7.05% notes due 2019 came in between 5 bps and 10 bps, to 409 bps bid, 407 bps offered. They priced at 415 bps over Treasuries.

Smith 10-year better

The tranche of 9.75% notes due 2019 from Smith International were seen better in trading shortly after pricing, a trader said.

They were in 10 bps to 20 bps to 670 bps bid, 660 bps offered.

There was not a level on the five-year tranche.

Union Electric issue moves in

Union Electric Co.'s issue of 8.45% notes due 2039 was seen nearly 20 bps tighter than where they priced Friday, a trader said.

They were at 465 bps offered, in from the Treasuries plus 482.5 bps pricing level.

GE Capital heavily traded

General Electric Capital Corp. was seen with the top-traded bond as of early Monday afternoon.

The financing arm's 5% bond due 2010 was at the top of the list, with a 5.25% due 2012 also near the top.

Bank, broker CDS tighten

Bank and broker credit-default swaps were each seen 5 bps to 20 bps tighter late Monday afternoon, a trader said.

There were no standout shifts from specific names.

Financial names move big

A bond from Citigroup Inc. was one of the day's biggest movers. The 5.625% notes due 2012 were upwards of 200 bps tighter from the previous week's level when their liquidity was in question. Since then, an internal memo revealed the company has been profitable so far in 2009.

Other financial names like HSBC Finance and a unit of JPMorgan Chase & Co. were also seen jumping more than 100 bps over last week.

Some others were not so lucky, widening from the previous week. Another bond from HSBC Finance was seen more than 100 bps wider, with Rio Tinto Finance out more than 90 bps.

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