Using "the bells and whistles" of call protection adn put options, a trio of corporations lured bond buyers to the long end yesterday.
United Airlines Inc., which shed its junk status in March, took the plunge with 30-year paper that is noncallable for life, as did Canadian Pacific Ltd.
But Bell Atlantic unit Chesapeake & Potomac Telephone Co. of Maryland bucked the trend, offering 40-year noncallable debentures with a put five years out -- just the fourth putable deal this year.
The issues came as seasoned high-grades advanced 1/4 point in moderate trading.
Working through Lehman Brothers, Chesapeake & Potomac, a top-quality telephone credit, offered its $100 million of debentures at par as 8.30s.
By putting its refinancing risk in the hands of investors, the company landed a spread of just 35 basis points over five-year Treasuries, about 80 basis points less than standard 40-year phone paper.
Moody's Investors Service rates the issue Aa3; Standard & Poor's Corp. rates it AA.
With interest rates so low, many corporate borrowers have taken the opposite tack this year, giving up their financial flexibility with noncallable paper to lure investors.
According to Securities Data Co./Bond Buyer, just three other companies -- General Motors Corp., Waste Management Inc., and Delta Natural Gas -- have offered putable debt this year.
But Frank Plumley, vice president in the telephone group at Standard & Poor's, said Bell Atlantic and its units appear to have a penchant for puts.
"Within the spectrum of companies I follow, Bell Atlantic has been the biggest -- if not the only -- user of put bonds," Mr. Plumley said. "The choice of doing a put bond comes down to your capacity to repay on the put date and how you value the put option on the pricing of the deal.
"If you're optimistic about your business prospects and have a strong feeling about your material capacity to repay debt that may come due, and you feel the pricing offsets the value of the put, it's a great instrument," he said. "If these things are used to a levle that creates potential spikes in refinancing, we woud have more concern than we have now, but Bell Atlantic companies' exposure doesn't look like there's a great risk in maturity schedules."
Margaret Jones, utility analyst at Prudential Securities Inc., said Chesapeake & Potomac officials "probably feel that theyire just not going to be needing more funds over the next several years and can afford to do thisngs like this."
Several Bell system companies offered putable debt last year, and "the issues are in great demand because they're so rare," Ms. Jones said.
Unlike elctric utilities, "these telephone companies are pretty much positioning themselves for the end of cost-based regulations, [so] in their view, profits are going to be driven by their revenues and costs as opposed to rates set by regulatory authorities," Ms. Jones said. "That would be a real motivating factor to get the cost of their debt down by unconventional means."
Officials at Chesapeake & Potomac could not be reached for comment yesterday.
United, meanwhile, made its first appearance in the new-issue market as a "rising star."
Working through First Boston Corp., the airline, upgraded from junk status in March, offered $300 million of noncallable 30-year debentures with a 10.25% coupon at a spread of 185 basis points over the bellwether Treasury long bond.
While cutthroat competition and high leverage have helped put nearly two of every three dollars of airline debt into default, Delta Airlines Inc., American Airlines Inc., and United will eventually benefit from this financial darwinism, analysts say.
United, for example, has now partly overcome its labor relations problems and is expected to benefit from fleet modernization and expansion into profitable overseas markets.
United's relatively upbeat outlook -- and investors' hunger for yield -- may have helped keep the airlines' financing costs down, market players said.
"It's a little difficult to sell airline paper, but I thought it was a tad rich, compared with, say, American and Delta," said Keith Simon, who trades long-term corporates at Kidder, Peabody & Co.
AMR Corp., parent of American, tapped the market Monday with noncallable seven-year notes priced as 9 1/2s at 140 over the Treasury curve.
Canadian Pacific, menawhile, offered $250 of noncallable 30-year debentures as 9.46s at a risk premium of 97 basis points.
"These deals are expensive," said Heather Landon, vice president at T. Rowe Price Associates in Baltimore. "We didn't participate in any of them."
"Spreads are pretty tight, and maybe if things widen out a bit you'll get more buyers," she said. "We've been focusing more on intermediates when we're in the buying mode -- we want our credit risk at the front end."
Card Defaults Continue
One day after the asset-backed market's first early pay-out event, Moody's reported that delinquencies on credit cards backing some securitized debt continue to rise.
About 5.83% of the bank card accounts tracked in Moody's Aggregate Credit Card Index were delinquent at the end of May, 18% more than in May 1990.
That increase was not as sharp as those in the previous six months, when cardholder delinquency rates were 28% higher, on average, than a year ago.
"Although declines in consumer creditworthiness, as indicated by the high delinquency and writeoffs rates, showed some evidence of slowing in May of this year, trends continued in the downward direction," said Moody's economist Andrew A. Silver.
Mr. Silver said the collateral performance of the approximately $55 billion of credit card-backed securities rated by Moody's remains well within bands consistent with their current ratings, most of which are Aaa. But if current trends persist, the market could see more early amortizations, he said.
On Wednesday, Southeast Bank of Miami said it would retire a $300 million card issue because of high defaults on the credit cards backing it.
"This is an isolated circumstance, and investors who understand the nature of the collateral used to back these bonds have no reason to be overly concerned," said Paul B. Jenison, director of consumer asset-backed securities at Prudential Capital Funding.
"I think it's being deemed as a non-event. Southeast is sort of by itself as an issuer," said one syndicate official. "If you were a more frequent issuer and made no attempt to protect investors, you'd have a lot of trouble next time you tried to bring a deal."
Still, the Southeast securities carry a 9% coupon -- a rare animal in today's asset-backed market. That means investors will face reinvestment risk.
Standard & Poor's yesterday affirmed the AAA ratings on Southeast Bank Credit Card Trust 1990-A and 1990-B, reflecting the protection investors get from the underlying credit card accounts' expected cash flow and 12% letter of credit.
