The record-challenging pace of new junk issues is expected to look a lot more like the tortoise's than the hare's, at least through July 4.
"Quiet," is the way Kingman Penniman, executive vice president at Duff & Phelps/MCM Investment Research Co., sees the new issue scene between now and Independence Day.
The market is "probably just in the doldrums between the U.S. Open and the Fourth of July," Penniman said.
According to Securities Data Co., at $25.3 billion through Monday, 1993 new public junk issues so far handily beat the $19.1 billion total for the same period in 1992, which helped push that year to a record.
This week shows only one possibility so far for a public deal: Envirosource's $200 million offering. Even so, that deal is not expected until Friday.
On the private side, however, Bally's Casino Holdings Inc. recently priced $220 million of Securities and Exchange Commission Rule 144A senior discount notes due 1998. The deal was increased from $75 million.
IMC Fertilizer was expected to price $225 million of Rule 144A debt last night or today. Enacted in April 1990, Rule 144A was designed to facilitate secondary trading in unregistered securities.
Judging from the indications of interest that IMC Fertilizer's two-part deal has received, Penniman believes demand for high-yield deals remains strong.
"IMC was well circled, which would indicate that there was still a lot of cash to be invested," he said.
Though Penniman expects new issue activity to slow through July 4, he noted that with $20 billion of shelf-registered high-yield debt out there, anything is possible if companies see a good opportunity to price their debt.
On the high-grade side, Phil Kazlowski, head of corporate bond trading at Citicorp Securities Markets Inc., said it would be hard to fault a corporate treasurer for deciding to issue now.
The market is very near 20-year lows on interest rates, the yield curve is steep, and spreads are tight to treasuries, Kazlowski said. "All things are in place that would make a client want to issue," he said.
In addition, Kazlowski believes corporate treasurers have to be feeling a bit of a reprieve. "A week ago, the planet thought the Fed was going to tighten," he said.
The pipeline of refunding candidates also remains full, particularly relating to utilities and telephone companies, Kazlowski said. He expects refunding activity to remain brisk until the long bond's yield rises above 7.25%.
In secondary trading, spreads on high-grade corporate bonds were unchanged. High-yield bonds were, also unchanged.
In other news yesterday, New York Telephone Co. filed a registration statement with the SEC to issue up to $1.2 billion of debt, a company spokesman said.
A unit of NYNEX Corp., New York Telephone will use proceeds primartly to refinance existing long-term debt, said John Bonomo, a New York Telephone spokesman. Underwriters have not yet been named, he said, adding that the shelf was filed Monday.
New issues
Equifax issued $200 million of 6.5% senior notes due 2003. The noncallable notes were priced at 99.49 to yield 6.57% or 67 basis points over comparable Treasuries. Moody's Investors Service rates the offering A3, while Standard & Poor's Corp. rates it A-minus. First Boston Corp. lead-managed the offering.
International Lease Finance issued $100 million of 5.75% notes due 1998. The noncallable notes were priced at 99.75 to yield 5.808% or 61 basis points over when-issued five-year Treasuries. Moody's rates the offering A2, while Standard & Poor's rates it Aplus. Duff & Phelps Credit Rating Co. rates it AA. Mervill Lynch & Co. lead-managed the offering.
Northern Illinois Gas issued $50 million of 7.375% first mortgage bonds due 2023. Nonrefundable for five years, the bonds were priced at 99.70 to yield 7.40% or 64 basis points over 30-year Treasuries. Moody's rates the offering AS, while Standard & Poor's rates it AA. Duff & Phelps rates the offering AA-plus. A group led by Salomon Brothers won competitive bidding to underwrite the offering.
Mississippi Power issued $35 million of 7.45% first mortgage bonds due 2023. Nonrefundable for five years, the bonds were priced at 98.951 to yield 7.538% or 77 basis points over comparable Treasuries. Moody's rates the offering Al, while Standard & Poor's rates it A. Goldman, Sachs & Co. won competitive bidding to underwrite the offering.
Rating News
Standard & Poor's downgraded Quebec's and Hydro-Quebec's provincially guaranteed long-term debt ratings to A-plus from AA-minus. The rating agency changed its outlook on the province's and the utility's long-term debt to stable from negative. Standard & Poor's also affirmed its A-1-plus commercial paper rating on Quebec's and Hydro-Quebec's programs.
"The downgrade reflects the increase in the considerable tax-supported debt burden, the likelihood of further, albeit modest, increases until the recovery is well underway, and ongoing budgetary pressures that hinder more rapid deficit reduction," a Standard & Poor's release says.
