The market saw several large deals, including a $4 billion offering by Morgan Stanley and a $3 billion deal from General Electric. One investor noted the environment was turning more into a buyer's market as deals, including one from high-yield issuer ITC Deltacom, were pulled due to a lack of investor interest.
* Metropolitan Edison, a wholly owned unit of FirstEnergy Corp. in Akron, Ohio, sold $250 million of first mortgage notes early last week through J.P. Morgan Securities and Wachovia Securities. The 4.875% notes due in'14 were priced at 120 basis points over Treasuries, and are rated triple-B. The deal, which was upsized from $200 million, is noteworthy because it is the latest in a line of utility sales and comes after the large and well-performing Pacific Gas & Electric deal earlier this month. Dale Spencer, portfolio manager at Aladdin Capital Management, notes that at 120 over MetEd is an attractive utility deal. He adds the sector is safer than other, more-cyclical ones and represents some value. Another investor who bought the MetEd states that he would not have purchased the deal if it had not been secured by a first mortgage, which made it a safer bet.
*Hercules Inc., a specialty chemical producer in Wilmington, Del., planned to sell $250 million of 25-year senior subordinated notes, puttable in 10 years, in addition to a term loan and revolving credit facility. The Credit Suisse First Boston-led deal's rare use of a structure that allows for the bonds to move up the capital a structure as the deal progresses caught investors' attention. One investment-grade buyer says the paper will be issued as senior subordinated debt but will morph into senior debt after the existing senior debt matures. He calls it a creative and clever move by the issuer, since it allowed Hercules to lower its funding costs by selling debt that will eventually move up its capital structure. Given the put option, the deal is realistically a 10-year piece of paper, according to another official familiar with the structure.
