Wells Fargo Plans $1.5 Billion of Debt After S&P Downgrade

By Sapna Maheshwari and Mary Childs – Dec 5, 2011 5:59 PM GMT+0000

Wells Fargo & Co. (WFC) is planning a $1.5 billion sale of five-year notes in its first corporate bond offering since Standard & Poor’s cut the biggest U.S. home lender’s credit ranking to A+ from AA-.

The bank may issue the fixed-rate notes as soon as today to yield 175 basis points above similar-maturity Treasuries, said a person with knowledge of the transaction, who declined to be identified because terms aren’t set. San Francisco-based Wells Fargo last issued five-year notes in March 2010 with a $1.25 billion sale of 3.625 percent notes at a 123 basis-point spread, according to data compiled by Bloomberg.

S&P downgraded Wells Fargo, Bank of America Corp., Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) last week after the ratings firm revised criteria for dozens of the world’s biggest lenders. Wells Fargo retreated to a single A credit ranking from S&P for the first time since 2003, Bloomberg data show. Investor optimism that Europe’s leaders can contain the region’s sovereign debt crisis outweighed the cuts, pushing relative yields on bank bonds down from the highest in more than two years.

The price guidance is 20 basis points wider than outstanding Wells Fargo notes and “significantly tighter” than JPMorgan Chase & Co. (JPM)’s outstanding five-year notes, Morningstar Inc. analyst James Leonard wrote in a note today. “Given the new issue concession provided, and the overall spread level of this A+ name, we think these notes make sense for portfolio managers who are filled-up on the J.P Morgan credit,” he wrote.
Bank Spreads

Spreads on bank debt narrowed to 386 basis points, or 3.86 percentage points, on Dec. 2 from 403 basis points on Nov. 29, which was the widest level since July 2009, according to Bank of America Merrill Lynch index data.

Credit-default swaps on Wells Fargo, which investors use to hedge against losses on the company’s debt or to speculate on creditworthiness, declined 9 basis points to 140.1 basis points as of 11:37 a.m. in New York, according to data provider CMA. The contracts, which typically fall as investor confidence improves, are down from a 30-month high of 185 basis points on Nov. 25.

Of the six biggest banks, Wells Fargo’s swaps are higher only than those tied to JPMorgan at 139.5 basis points, the data show. The average of contracts on Wells Fargo, Bank of America, JPMorgan, Citigroup, Goldman Sachs and Morgan Stanley (MS) has fallen 97.7 basis points since Nov. 25 to 262.4, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Citigroup, the third-biggest U.S. lender, sold $500 million of 3.625 percent notes due in December 2014 on Dec. 2 to yield 323.9 basis points above similar-maturity Treasuries, Bloomberg data show.

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