Summer vacations have slowed the high-yield market's new-issue parade, but the bank should strike up again after Labor Day, junk sources said yesterday.
"I only have two prospectuses on my desk where I normally have 10," one high-yield investor said, adding that he did not plan to buy either deal.
The two offerings, which both consist of senior subordinated notes due 2002, are Tyco Toys Inc.'s at $110 million and Wolverine Tube Inc.'s at $100 million, he said. At a 10% to 10 1/4% range for each, price talk on the deals is too rich, the source said.
"When there's not a lot of deals, yields spreads get a little tight," he said.
Another buyside source said while two propectuses may seem paltry, at this time of year, "it's two more than you usually have." He added that some private placement deals are also circulating.
The second source said that while many high-yields buyers are used to seeing 15% coupons suffer "sticker shock" when they see a 10% deal, they should buy it if they think it is a good credit.
A hefty sum of money currently languishing in short-term securities may be looking for a new place to go. It could end up competing for high-yields. Buyers need to decide whether to grab these deals now or wait for better opportunities in the fall, he said.
But junk sources agreed that when underwriters and buyers return from vacation after Labor Day, the number of offerings should increase.
"I would look for a pickup the week after Labor Day," a trader said.
In secondary trading Friday, high-yield bond prices finished 1/4 point lower in light trading. The trader said prices fell "just because it's summer and a lot of people are out of the office."
High-grade bond prices dropped in sympathy with Treasuries, which lost nearly 1/2 point in the long end after the dollar fell to post-World War II lows against the German mark.
"We're definitely lagging [Treasuries] in what I would say is sluggish activity," one trader said Friday.
New Issues
Pepsico issued $200 million of 6.25% notes due 1999. The noncallable notes were priced at 99.403 to yield 6.357% or 40 basis points over comparable Treasuries. Moody's Investors Service rates the offering Al, while Standard & Poor's Corp. rates it A. J.P. Morgan Securities Inc. won competitive bidding to underwrite the offering.
Commercial Credit issued $100 million of medium-term floating-rate notes due 1993. Priced initially at par, the noncallable notes float daily 4 basis points over the federal funds rate. Moody's rates the offering A2, while Standard & Poor's rates it A. J.P. Morgan lead managed the offering.
Monongahela Power issued $25 million of 7.25% first mortgage bonds due 2207. Noncallable for 10 years, the bonds were priced at 99.333 to yield 7.324% or 90 basis points over comparable Treasuries. Moody's rates the offering Aa3, while Standard & Poor's rates it AA-minus. Morgan Stanley & Co. managed the offering.
Friday's Ratings
Moody's downgraded Coca-Cola Co.'s senior debt ratings to Aa3 from Aa2.
"The rating downgrade follows the company's announcement of a new 100 million share repurchase program and is based on expected increased use of leverage and reduced debtholder-protection measurements," a Moody's release says.
The rating agency's action ends a review announced July 20.
Also Friday, Standard & Poor' affirmed Coca-Cola Co.'s AA senior debt and A-1-plus commercial paper ratings. Coca-Cola has approximately $1 billion of rated debt outstanding, the agency said in a release.
"The affirmation acknowledges the company's recent announcement that its board of directors has authorized a 100 million shares buy-back program through the year 2000." the Standard & Poor's release says. "Although the company will continue to invest heavily in its core business, S&P expects Coke's strong free cash flow will enable the company to buy in shares while managing a capital structure in line with the current ratings."
Moody's is reviewing Wal-Mart Stores Inc.'s long-term debt ratings for a possible upgrade.
"The review is prompted by the company's continuing ability to rapidly expand its store base, generate good comparable store sales growth, produce above average returns, and maintain strong operations including customer service," a Moody's release says.
Moody's is not reviewing the company's Prime-1 commercial paper rating. Arkansas-based Wal-Mart is the nation's largest retailer.
Ratings under review are: Wal-mart Stores Inc.'s notes, debentures, and bonds rated Aa3; participating mortgage certificates rated Aa2; LB Mortgage Trust, Series 1991-2, Class A certificates rated Aa3.
The agency said its review "will focus on Wal-Mart's ability to continue to consistently generate strong performance and manage its high growth rate," the release says. Moody's will also weigh the effects the slow real estate development market might have on Wal-Mart and its competition.
Moody's has assigned a B2 rating to the Mediplex Group Inc.'s proposed senior subordinated note offering.
"The rating reflects management's aggressive acquisition strategy and the likelihood that debt levels will remain high in the intermediate term," Moody's release says. "The proposed $85 million debt offering will be used to re-finance bank debt and part of the company's ambitious capital spending program."
