Morgan Stanley sells $7.3 bln debt,most by sec firm
By Jonathan Stempel
NEW YORK, March 27 (Reuters) - Morgan Stanley said on Wednesday it sold $7.3 billion of global bonds in the largest bond sale ever conducted by a securities firm, part of its efforts to raise funds before the Federal Reserve pushes interest rates and borrowing costs higher,
Expectations of a rate hike by June as the U.S. economy recovers have contributed to more than $68 billion of U.S. investment-grade corporate bond issuance this month, which analysts call the busiest month since October. This includes $28.8 billion of sales from General Electric Co. (NYSE:GE - news), Sprint Corp. (NYSE:FON - news), Weyerhaeuser Co. (NYSE:WY - news) and now Morgan Stanley.
``It's smart'' to issue, said Marjorie Grace, who helps invest $3 billion for Wells Capital Management in Denver, but did not buy the bonds, although she likes Morgan Stanley as a credit. ``Rates are low, and companies can secure inexpensive financing. If I were a CFO of a company and could lock in such low rates, I would be doing the same thing.''
Morgan Stanley's sale came one day after the firm, which also owns the Discover credit card, posted a 21 percent first-quarter profit decline, its sixth straight quarterly drop, because of weak merger activity and stock market jitters that kept brokerage clients from buying more shares.
Morgan Stanley (NYSE:MWD - news), one of Wall Street's largest investment firms, nearly doubled its sale from $4 billion and offered generous yields to draw what one investor said was $13 billion for its $6 billion of dollar-denominated bonds.
It sold $2.5 billion of five-year notes yielding 5.868 percent, $2.5 billion of 10-year notes yielding 6.67 percent and $1 billion of 30-year bonds yielding 7.258 percent.
HIGH YIELDS
The yield on the five-year notes on Wednesday was 0.23 percentage point above the yield on the five-year notes Morgan Stanley sold last year, an unusually large gap.
``This was a little bit off the charts for a company with this credit quality,'' said Gregory Habeeb, who added $62 million of Morgan Stanley bonds to the $2.5 billion he invests for Calvert Asset Management Co. in Bethesda, Maryland. ``These bonds looked cheap.''
In a statement, Morgan Stanley Treasurer Alex Frank said the sale will help Morgan Stanley make its capital structure more ``conservative.'' The company did not immediately return calls seeking further comment.
Wednesday's bond sale will also help Morgan Stanley's performance on the hotly contested ``league tables,'' which rank banks according to how much business they generated and are a marketing tool for banks to garner future business.
Thomson Financial Securities Data, which releases the first-quarter tables on Thursday, said on Wednesday that Morgan Stanley's self-funded sale counts for the tables because two or more other managers helped arrange the sale. Morgan Stanley may rise in the quarterly rankings for investment-grade debt to No. 4 from No. 6, according to preliminary Thomson data.
SALE TERMS
Morgan Stanley sold $2.5 billion of 5.8 percent five-year notes priced at 99.710 cents on the dollar to yield 1.13 percentage points more than similar maturity U.S. Treasuries.
It also sold $2.5 billion of 6.6 percent 10-year notes priced at 99.496 cents on the dollar to yield 1.35 percentage points more than Treasuries, and $1 billion of 7.25 percent 30-year bonds priced at 99.903 cents on the dollar to yield 1.53 percentage points more than Treasuries.
The respective bonds were later bid at yields of 1.09, 1.36 and 1.47 percentage points more than Treasuries, traders said. Similarly rated five-year notes from Citigroup Inc. (NYSE:C - news) and Wells Fargo & Co. (NYSE:WFC - news) yields a respective 0.87 and 0.82 percentage point more than Treasuries, traders said.
Morgan Stanley also sold 1.5 billion euros ($1.31 billion) of seven-year notes yielding 0.62 percentage point more than mid-swaps.
The bank had conducted the largest prior bond sale by a securities firm, Reuters data show. Last April it raised $6 billion by selling $3.5 billion of five-year notes yielding 6.123 percent and $2.5 billion of 10-year notes yielding 6.818 percent. It later boosted this offering by $1 billion.
Moody's Investors Service rates Morgan Stanley's existing debt ``Aa3,'' while Standard & Poor's rates it ``AA-minus.'' The ratings are the agencies' fourth-highest investment grades.
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