At least $850 million of new straight debt broke the usual Friday quietude after May employment data released that day sent interest rates lower.
"The upsurge in issuance was definitely triggered by the drop in interest rates that followed the weaker than expected [May] employment report," said John Lonski, senior economist at Moody's Investors Service.
"I don't think we would have have seen this had this not been an employment Friday or had this been an employment Friday and the market had gone the other way," said Mike Bassett, a vice president at Stone & McCarthy Research Associates.
The smaller than expected 68,000 increase in May nonfarm payrolls indicated only modest economic growth, renewing market hopes that the Federal Reserve would ease monetary policy.
Mr. Lonski believes that the Fed may ease again if the market continues to get good news regarding inflation.
"The Fed will have to ease one more time if only to elicit a cut in the prime rate from banks," he said.
Mr. Lonski said Chemical Bank Friday raised its prime rate to 6.5% from 6.25%. While acknowledging he didn't know for sure, Mr. Lonski speculated that Chemical's action could be seen as a protest of the Fed's failure to ease. Fed easing, aside, however, "I think the macro-economic fundamentals still point to lower inflation and private sector borrowing restrictions, both of which favor lower bond yields," Mr. Lonski said.
Chemical spokesman John Meyers said the bank's action was not a protest.
"Not at all. We are simply moving back in line with the rest of the market," he said.
Debt securities backed by pools of commercial mortgages will surge sharply in the near-term, offering "a glimmer of hope" for commercial real estate finance, according to a Fitch special report issued Friday.
An expected $20 billion of multi-family and othe commercial mortgage securities issued in 1992 -- about two-thirds of which will come from the Resolution Trust Corp. -- will fuel that growth, Fitch's report says.
That $20 billion figure compares to $4 billion of debt in 1991 and $1 billion in 1990, the agency said.
As the market matures it will spur expanded efforts from insurance companies, private developers, and investors as well, Fitch said.
Fitch will rate this new debt under new criteria, "Commercial Mortgage Stress Test," to be released today, the report says.
The test assesses commercial mortgage default probability and loss severity, and administers stress tests for mortgage pools, Fitch said.
In secondary trading Friday, high grades were "a little wider," but for the most part followed Treasuries. High-yield bonds finished unchanged to up 1/8 point.
Friday's Issues
Ford Motor Credit issued $400 million of 8% notes due 2002. The noncallable notes were priced at 99.769 to yield 8.034%, or 75 basis points over comparable Treasuries. Moody's rates the offering A2, while Standard & Poor's Corp. rates it A. J.P. Morgan Securities Corp. was the lead manager.
Household Finance issued $150 million of 7.625% senior notes due 1999. The noncallable notes were priced at 99.717 to yield 7.678%, or 75 basis points over seven-year Treasuries. Moody's rates the offering A3, while Standard & Poor's rates it A. Goldman, Sachs & Co. was the lead manager.
Pittsburg National Bank issued $100 million of bank notes due June 11, 1993. The noncallable notes were priced initially at par to yield 4.30%. They will be reoffered through Salomon Brothers Inc. at various prices. Moody's rates the offering Aa3, while Standard & Poor's rates it A-plus.
Dillard Department Stores issued $100 million of 7.375% notes due 1999. The noncallable notes were priced at 99.43 to yield 7.481%, or 57 basis points over comparable Treasuries. Moody's rates the offering A2, while Standard & Poor's rates it A-plus. Morgan Stanley & Co. managed the offering.
Pepsico issued $100 million of 5% step-up notes due 1995. After a year, the coupon on the notes increases to 6.4%. The notes are callable after the step-up date on 30 days' notice. Moody's rates the offering A1, while Standard & Poor's rates it A. J.P. Morgan managed the offering.
J. Baker Inc. issued $65 million of 7% convertible subordinated debentures due 2002 at par. Noncallable for three years, the debentures convert into common stock at $16.125, a 25.2% conversion premium closing over Thursday's closing price. Moody's rates the offering B2, while Standard & Poor's rates it B-plus. Smith Barney, Harris Upham & Co. managed the offering.
Friday's Ratings
Moody's downgraded the long-term debt ratings of Delta Air Lines Inc., gave a Baa3 rating to a proposed convertible preferred stock issue, and confirmed the company's Prime-2 commercial paper rating.
"The rating downgrade reflects a continuing poor outlook for Delta's earnings, which have been exacerbated by the latest industry-wide half-price fare wars," Moody's said.
Ratings downgraded are: Delta's secured equipment certificates and Rule 144A secured equipment trust certificates to Baal from A3, senior unsecured debt issues and industrial revenue bonds to Baa2 from Baa1, shelf registration to prospective Baa2 from prospective Baa1, and industrial revenue bonds to Baa3 from Baa2.
Standard & Poor's has upgraded Lockheed Corp.'s commercial paper to A-1 from A-2. The rating agency affirmed the company's A senior debt rating and revised its outlook to stable from negative. The company's outstanding debt totals about $1.7 billion.
"The upgrade of Lockheed Corp.'s commercial paper rating reflects improved liquidity and reduced financial risk," Standard & Poor's said in a release. "Strengthening internal cash generation going forward due to improved operational efficiencies provides the basis for greater financial flexibility," the release said.
