With the 30-year Treasury bond yield at its lowest level since January, the biggest corporate issuance month ever, issuers should have flooded the market yesterday.
They didn't. Instead, about $1 billion of new debt, a good slice of it junk, arrived.
"I'm a little surprised because the [interest rate] move has been so good," one source who tracks new issues said.
"All I'm thinking of is that there is going to be a landslide tomorrow," a trader said yesterday.
Higher than expected U.S. jobless claims helped push Treasuries up nearly a point in the 30- and 10- year sectors, he said. The yield on the 30-year bond hit its lowest level since Jan. 14, when it was also 7.53%.
In the week ended July 11, claims increased by 19,000 to a seasonally adjusted 422,000.
High-grade corporate prices lagged Treasuries, adding about 1/2 point in the long end, traders said.
Thursdays are usually a fairly prime day for issuance, with no long weekend or other event to explain issuer hesitancy, the source that tracks new issues said.
"You can't say people are just not there to pay attention," he said.
He speculated the some corporate treasurers are waiting to see if rates go lower.
"But that's an awful big if," he said.
High-yield bonds gained 1/8 point in secondary trading.
New Issues
Union Carbide issued a two-part offering totaling $275 million. The first tranche consisted of $150 million of 7% notes due 1999. The non-callable notes were priced at 99.504 to yield 7.091%, or 92 basis points over comparable Treasuries. The second tranche consisted of $125 million of 8.75% debentures due 2022. Noncallable for 10 years, the debentures were priced at 99.924 to yield 8.75%, or 122 basis points over comparable Treasuries. Moody's Investors Service rates the offering Baa2, while Standard & Poor's Corp. rates it BBB. Morgan Stanley & Co. lead managed the offering.
TransAmerica Financial issued $150 million of 5.85% notes due 1996 at par. The noncallable notes were priced to yield 55 basis points over the 7 7/8% four-year Treasury notes of 1996. Moody's rates the offering A2, while Standard & Poor's rates it A-plus. First Boston Corp. lead managed the offering.
FPL Group Capital sold $150 million of 6.5% debentures due 1997 at par. The noncallable debentures were priced to yield 85 basis points over when-issued five-year Treasuries. Moody's rates the offering Baa1, while Standard & Poor's rates it BBB-plus. Salomon Brothers lead managed the offering.
Life Partners Group Inc. issued $100 million of 12.75% senior subordinated notes due 2002 at par. Moody's rates the offering B1, while Standard & Poor's rates it B. First Boston lead managed the offering. The notes are callable after five years at 103.643, moving to par in 1999.
Ryland Group Inc. issued $100 million of 10.50% senior subordinated notes due 2002. Noncallable for five years, the notes were priced at 98.504 to yield 10.75%. Moody's rates the offering Ba2, while Standard & Poor's rates it BB-plus. Kidder, Peabody & Co. lead managed the offering.
Norfolk Southern Railway sold serial equipment trust certificates totaling $63.3 million due 2007. The 15 tranches were priced to yield spreads ranging from 12 basis points over comparable treasuries to 36 basis points over. Merrill Lynch won competitive bidding to manage the offering. Both Moody's & Standard & Poor's rate the offering triple-A.
Yesterday's Ratings
Moody's raised its rating on Caesar's World Inc.'s $241 million of 13.5% subordinated notes due 1997 to Ba3 from B1. The agency also assigned a Ba3 rating to the company's proposed $150 million senior subordinated note offering.
"The rating upgrade reflects the company's continued good operating performance, stable earnings in the face of economic difficulties and increased competition, and strengthened equity base," a Moody's release says.
"The rating is also moderated by an expected increase in debt as the company will either fund new projects in the next two years, or periodically buy back stock in limited amounts," the release says.
Caesar's will use the proposed $150 million debt offering, together with some bank debt, to redeem the 13.5% subordinated notes when they become callable on Oct. 1.
