Three high-yield companies have pulled $850 million of deals off the heavy new-issue calendar so far this month, and a fourth may follow.
Two companies, Kroger Co. and Fort Howard Corp., cited unfriendly debt market conditions in their decisions to postpone the deals.
Those two issuers can afford to wait because they rank among the high-yield market's better quality credits, junk market sources said.
By waiting, "if anything they are acting like investment-grade companies," one analyst said.
Kroger postponed a $250 million deal through Citicorp Securities Markets Inc. on Oct. 6, and Fort Howard last Thursday postponed a $500 million two-part offering through Morgan Stanley & Co.
A third firm, United States Leather Holdings, pulled off the calendar a $100 million offering date 2002 through Bear, Stearns & Co. because it hinged on an equity deal the company canceled.
"They probably could have gotten the [equity] deal done, but not at the price they wanted," one buyside source said.
The source cited stock market troubles and the size of the equity offering, which some buyers may have found too small to ensure sufficient liquidity. Comment could not be obtained from Bear Stearns.
Although it has not officially pulled its two-part offering, another issuer, United Gas Pipe Line Co., continues to assess market conditions and weigh financing alternatives, company spokeswoman Beth West said yesterday. Rumors circulated earlier this month that the company would pull its offering.
The proposed deal consists of $125 million of senior notes due 1999 and $125 million of senior notes due 2002 through Salomon Brothers.
In secondary trading yesterday, the high-yield market was 1/4 point lower in "relatively listless activity," one high-yield participant said. High-grades moved lower in sympathy with Treasuries.
New Issues
Dr. Pepper/Seven-UP Cos. issued $375 million of senior subordinated discount notes due 2002. The notes, which have a $656.5 million face amount, were priced at 57.1204, to yield 11.5%. They are callable after five years at 104.313 and moving progressively to par. If the company completes an initial public offering, it can call 50% of the deal of 107 in the first 24 months. Moody's rates the offering Caa, while Standard & Poor's rates it CCC-plus. BT Securities lead managed the offering.
Noranda Forest issued $100 million of 8.875% notes due 1999. The noncallable notes were priced at 99.661, to yield 8.94%, or 250 basis points over comparable Treasuries. Moody's rates the offering Baa3, while Standard & Poor's rates it BBB-minus. First Boston Corp. lead managed the offering. Wisconsin Public Service yesterday issued $50 million of 7.30% first mortgage bonds due 2002. The noncallable bonds were priced at 99.713 to yield 7.34%, or 50 basis points over comparable Treasuries. Moody's Investors Service rates the offering Aa2, while Standard & Poor's Corp. rates it AA-plus. Kidder Peabody & Co. lead managed the offering.
Zions Bancorp issued $50 million of 8.625% subordinated notes due 2002. The noncallable notes were priced at 99.402 to yield 8.715% or 187.5 basis points over comparable Treasuries. Moody's rates the offering Baa2, while Standard & Poor's rates it BB-plus. Goldman, Sachs & Co. sole managed the offering.
Standard & Poor's has upgraded Georgia Gulf Corp.'s subordinated debt to BB-minus from B and removed it from Credit Watch where it was placed with positive implications on April 15.
The company was placed under review for a possible upgrade after announcing it intended to sell common stock, a Standard & Poor's release says.
Approximately $475 million of debt is outstanding. The implied senior debt rating is BB-plus.
"The ratings reflect the firm's position as a low-cost, mid-sized commodity chemical producer and its diminishing but still heavy debt burden," the release says. "The company used the $145 million proceeds from the sale of 6.1 million common shares to further reduce senior debt incurred in a 1990 defensive recapitalization."
Moody's has cut Sea Containers Ltd.'s preferred stock to "b1" from "ba3," and give a B1 rating to its proposed senior subordinated debentures due 2004.
The rating action also affects the company's 10.25% subordinated debentures due 1998, which were lowered to B1 from Ba3.
"The new ratings and rating downgrades are based upon Sea Container's aggressive capital expenditure program, increasing leverage, modest coverage measurements, and exposure to the cyclicality of container shipment demand," a Moody's release says.
