A quartet of corporations raised nearly $1 billion in the credit markets yesterday as the Treasury long bond sank to its lowest yield in more than a month.
With the 30-year government issue hovering at 8.375% late yesterday -- its lowest level since early June -- Long Island Lighting Co. and KN Energy Inc. hit the long end, while finance companies Associates Corp. of North America and Ford Motor Credit Co. took their usual spot in the intermediate sector.
The issues came amid 1/4-point gains in seasoned long-term high-grades.
Lilco, which provides electricity and gas to nearly 2.8 million people on Long Island, in New York, lead the pack with $375 million of general and refunding bonds due July 1,2024.
A Lehman Brothers team priced the issue as 9 5/8s to yield 140 basis points over the Treasury curve.
That spread was far narrower than the risk premium on Lilco last offering in May, when the utility paid 170 basis points more than Treasuries for 30-year bond financing.
What's more, that issue was non-callable for life, a structure that trimmed Lilco's financing cost by 10 to 20 basis points. Yesterday's offering, by comparison, was structured with call protection of just five years, as are most utility issues.
Moody's Investors Service rates the issue Baa3; Standard & Poor's Corp. rates it BBB-minus.
"The triple-B utility area has come in about 50 to 60 basis points over the two months," said Thomas J. Steffanci, director of taxable fixed-income securities at Fidelity Management & Research in Boston. Many fixed-income investors have been hunting for yield but still want to buy safe credits, he said, adding, "Lilco is considered a premier name in that area."
And as rates have declined, many buyers that need absolute yield -- insurance companies, in particular -- have bid up the entire triple-B sector, he said.
Fund managers agreed.
"We had looked at it very briefly, but like most of the triple-B sector, it's very rich," one portfolio manager said of the Lilco deal. "It may have been attractive for the more yield-oriented accounts, but for an active-value account, we don't think this sector has much value."
Though Lilco carries weak triple-B ratings, most analysts say it is a credit on the mend and typically trades more like a weak single-A name.
The utility, whose debt leverage now runs at about 63%, has been hard hit by its involvement with the abandoned Shoreham nuclear power plant, which crimped its financial and operational performance for the past few years.
But last November, Lilco received the third of three 5% rate increases under the 1989 Shoreham settlement, and filed with New York State for three base-rate increases last December.
"It's just a matter of time before they get better financials," said Charles B. Earle, utility analyst at Mabon Securities Corp.
Because Lilco is "probably gradually working their way up to a high-triple B," "the issue may have come cheaper than a lot of people thought," Mr. Earle argued.
But other market players noted that lower-quality corporates like Lilco are generally leaning toward the rich side.
"I think overall the sector is pretty rich, but in terms of this specific issue, it's more in line with where things are trading," said Katherine Bullock, who follows Lilco for fund manager Scudder Stevens & Clark. "If anybody wanted to play this sector, Lilco is probably a good name to play in, because of its long-term prospects."
In the finance sector, Associates Corp. and Ford Motor Credit, both units of Ford Motor Co., stayed inside of 10-years.
Finance companies like Associates and Ford Motor Credit are the leading issuers in the short- and medium-term area of the curve. More than 40 captive finance companies now have medium-term note programs under shelf registration, with debt totaling almost $100 billion.
Associates; one of the biggest players in the nonsecured consumer lending arena, offered $300 million of 8 3/4% seven-year notes priced to yield 72 basis points more than seven-year governments.
The noncallable securities, sold via Morgan Stanley & Co., are rated Aa3 by Moody's and AA-minus by Standard & Poor's. Those ratings reflects Associates solid business positions and strong record of profitability.
Associates yesterday reported its net earnings rose 17% in the first half of 1991, to $190 million. Despite uncertain economic times, the company's consumer and commercial loan portfolios continued to grow, with its total assets at a record $19.3 billion on June 30.
In March, Associates' intermediate paper traded at spreads upwards of 100 basis points. The company sold intermediate-term notes in June with a risk premium of 70 basis points.
Ford Motor Credit, meanwhile, offered $300 million of noncallable five-year notes.
Goldman, Sachs & Co. priced the securities as 8.875s to yield 105 basis points more than the when-issued five-year Treasury.
Ford Motor Credit, the auto finance arm of Ford Motor Co., is rated A2 by Moody's and A by Standard & Poor's.
On June 19, the company sold $250 million of noncallable seven-year notes with a risk premium of 108 basis points.
Finally, KN Energy, a Colorado-based natural gas distributor, offered $45 million of 30-year notes priced as 9.625 to yield 124 basis points more than the bellwether long bond.
A Dillon, Read & Co. team was sole manager, pricing the securities with a sinking fund that gives them a 20.5-year average life.
Moody's rates the issue A3; Standard & Poor's rates it A-minus.
In the high-yield market, most junk bonds advanced 1/4 point.
Bucking that trend, issues of Quantum Chemical Corp. slipped nearly five points after the chemical manufacturer reported disappointing second-quarter earnings.
In the asset-backed area, Chemical Securities Inc. announced it had completed an asset-backed debtor-in-possession financing for bankrupt Carter Hawley Hale Stores Inc.
Chemical did not announce pricing details of the $200 million card-backed deal, which was priced last week and privately placed.
But sources close to deal said the securities were priced with an 8 3/4% coupon to yield a healthy 185 basis points over the Treasury yield curve.
