Barnett Banks Inc., an infrequent player in the capital markets, has issued $150 million of 10-year notes.
The noncallable issue, which was priced at 70 basis points over 10-year Treasuries, was well received by the market.
Analysts said that Barnett generally issues long-term debt only when it can secure attractive pricing.
"Since Barnett has only one bullet in its gun," said a treasurer at another bank, "they want to issue when they can be sure it's at the right level."
Indeed, market sources said Barnett was interested in doing a deal for some time at a cost below 7%, and when the yield on the 10-year Treasury reached 6.25% on Tuesday, the bank came to market.
With the 70-basis-point spread, Barnett was able to issue the debt at a cost of 6.92%.
"The environment is favorable, with investors receptive to a well- managed regional bank," said Allerton G. "Tony" Smith, a bank bond analyst at Donaldson, Lufkin & Jenrette. "The stars are all in alignment for them."
The market is focused on Barnett because of recent takeover activity in the Southeast, analysts said, even though the bank has indicated it intends to remain independent.
The potential for interstate banking to introduce new entrants to the Florida markets also has increased the investor interest in banks like Barnett, said Mr. Smith.
With rates close to where they were in late June and early July, analysts expect both infrequent and frequent bank issuers to come to market this month.
"We anticipate a bigger calendar in September from a lot of banks," said Ethan M. Heisler, a bank bond analyst at Salomon Brothers Inc.
While analysts predicted moderate to heavy bank bond issuance in the next two months, they pointed out that September and October have presented some challenges for issuers.
"Those months have been bearish for stocks and bonds," said a banker. "That's just a fact. The more people recognize that's a seasonal thing, the more defensive they get, so it becomes a self-fulfilling prophecy."
Mr. Smith said that spreads on bank bonds typically weaken toward the end of the year, partly as a response to banks' proclivity for tidying up the balance sheet in the fourth quarter.
Mr. Smith hastened to add that this year, banks do not have interest rate mismatches, major restructurings, or any special charges on the horizon.
"I'm expecting a pretty tame fourth quarter," without any major surprises, said Mr. Smith.
As far as new bank issuance in the next few months, Mr. Smith believes the market will see a moderate level of 10-year subordinated notes, with heavy activity in the shorter-term area.
"The institutionally placed CDs and bank notes can be a substitute for retail-type deposits," said Mr. Smith.
Indeed, the market seems just as receptive to such short-term paper. After getting a good reception on a deal that started at $100 million, First Union Corp. doubled its one-year bank note offering Tuesday to $200 million.
Separately, First Bank System Inc. issued $250 million in 12-year subordinated notes on Wednesday.
The notes had a yield of 6.99%, and were priced at a spread of 80 basis points over Treasuries.
