'Great time' for Reliance Group's offering of high-yield debt totaling $650 million.

Reliance Group Holdings Inc. will sell $650 million of debt next week, and one junk source thinks that's nice timing.

"It's a great time. The market is really strong," he said, noting that money has been flowing into high-yield mutual funds. The company has not tapped the market since the late 1980s, the source said.

The New York-based company is expected to offer $300 million of senior subordinated notes 2003 and $350 million senior notes due 2000 through lead manager Donaldson, Lufkin & Jenrette Securities Corp.

The debt deal is part of the company's capital enhancement plan, which also involves the sale of $250 million of common stock. The plan aims to reduce the companies' total debt, extend maturities, reduce amortization, and cut interest expense.

Fred Cavanaugh, a vice president and portfolio manager of John Hancock's $300 million Strategic Income Fund -- approximately half of which is invested in junk -- said that while he did not attend yesterday's road show for the offering in Boston, he heard favorable reports. Price talk is expected early next week, Cavanaugh said.

Cavanaugh said based on the amount of cash coming in, today's market could be called a seller's market. However, given the high-yield calendar's size, investors know other opportunities exist and are being choosy about the deals they buy, he said.

"People can afford to be selective," Cavanaugh said.

Other high-yield deals on the way include Abbey Healthcare's $150 million of senior subordinated notes due 2002 through sole manager Donaldson, Lufkin & Jenrette and Armco's $125 million of senior notes due 2000 through lead manager Salomon Brothers.

In the high-grade sector next week, GTE North may offer $250 million of debentures due 1999 through competitive bidding. Central Maine Power Co. is expected to sell $75 million of general and refunding mortgage bonds, also through competitive bidding.

In secondary trading, high-yield bonds ended 1/4 point higher yesterday. Spreads on high-grade issues ended unchanged to slightly tighter with General Motors Acceptance Corp. and Chrysler issues ending each about five basis points tighter.

New Issues

International Paper issued $200 million of 6.875% debentures due 2023. The noncallable debentures were priced at 98.588 to yield 6.988% or 76 basis points more than comparable Treasuries. Moody's Investor's Service rates the offering A3, while Standard & Poor's Corp. rates it A-minus. Kidder, Peabody & Co. was lead manager.

Illinois Power issued $110 million of 5.625% first mortgage bonds due 2000. The noncallable bonds were priced at 99.435 to yield 5.732% or 75 basis points more than seven-year Treasuries. Moody's rates the offering Baa2, while Standard & Poor's rates it BBB-plus. Merrill Lynch & Co. was lead manager.

CBS issued $100 million of 7.125% senior notes due 2023. The Noncallable notes were priced at 99.94 to yield 90 basis points more than the old 30-year Treasury bond. Standard & Poor's rates the offering A. Bear, Stearns & Co. won competitive bidding to underwrite the deal.

Federal Home Loan Banks issued $45 million of 5.11% medium-term notes due 1998 at par. Noncallable for a year the notes were priced to yield 23 basis points more than when-issued five-year Treasuries. Salomon Brothers managed the transaction.

Rating News

Duff & Phelps Credit Rating Co. has downgraded RJR Nabisco Inc.'s senior debt to BBB-minus from BBB.

The rating agency also lowered the company's subordinated debt to BB from BB-plus, and outstanding commercial paper to Duff3 from Duff2.

Duff & Phelps also removed RJR Nabisco from Rating Watch where it was placed on April 2, 1993. RJR Nabisco Holdings Corp.'s B-plus rating on outstanding preferred stock issues remains unchanged.

The action affects about $8 billion of senior debt, $2 billion of subordinated debt, and $1.2 billion of commercial paper.

"The downgrade reflects the significant decline in cash flow from RJR's domestic tobacco operations that resulted from Philip Morris' decision to reduce prices on its premium brands," Duff & Phelps said in its release. "As a result of this loss in cash flow and a more focused effort to grow RJR's other businesses, debt reduction going forward is projected to be materially less than in the recent past."

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