PDV America Inc.'s $1 billion offering was said to be four to five times oversubscribed yesterday, though an official estimate could not be obtained from underwriter Salomon Brothers Inc.
Robert Hickey, an assistant vice president and portfolio manager at Van Kampen Merritt Inc., said he put in for more of the offering than he received.
Hickey said he would have requested even more had the offering received double-B ratings from both Moody's Investor's Service and Standard & Poor's Corp, he said. A lower rating would have meant more yield, Hickey said.
The offering received split ratings that put it half in the investment-grade category and half in junk.
PDV America is a wholly owned subsidiary of Petroleos de Venezuela S.A., that country's national oil company. It serves as a holding company for Petroleos de Venezuela's U.S.-based refining and marketing operations. PDV America owns Citgo Petroleum Corp.
Standard & Poor's assigned a non-investment grade rating of BB to the offering, while Moody's assigned an investment-grade rating of Baa3. Duff & Phelps also assigned an investment-grade rating of BBB-minus.
The first tranche of the three-part offering consisted of $250 million of 7.25% senior notes due 1998. The noncallable notes were priced at 99.589 to yield 7.35% or 210 basis points over comparable Treasuries.
The second consisted of $250 million of 7.75% senior notes due 2000 at par. The noncallable notes were priced to yield 218 basis points over comparable Treasuries.
The third piece consisted of $500 million of 7.875% senior notes due 2003. The noncallable notes were priced at 99.186 to yield 7.995% or 210 basis points over comparable Treasuries.
Salomon Brothers was sole manager of the offering. Hickey said the offering was priced 'just a tad" cheaper than he had expected.
Contributing to the deal's success was the NAIC 2 rating it received from the National Association of Insurance Commissioners, Hickey said. That investment-grade designation brought more insurance companies in as buyers.
"And it's a solid credit on top of it all," he said.
In the high-grade secondary market, Roger W. Marshall, president and managing director of Riggs Investment Management Corp., said he continues to favor bank and finance company paper and Canadian dollar denominated issues.
When short-term rates started coming down early 1992, RIMCO realized that it was only a matter of time before banks started announcing better earnings.
As for Canadian issues, they began looking cheap relative to the rest of the market about nine months ago.
"They had-gotten really beaten up," he said.
Bank and finance company issues represent about 25% of RIMCO's $280 million to $300 million corporate bond portfolio, while Canadian issues represent about 20%.
Some of the Canadian issues he holds include Ontario Hydro, Hydro-Quebec, Province of Ontario, and Bank of Nova Scotia.
Marshall buys nothing lower than A3, A-minus. He typically looks for single A bonds that are candidates for an upgrade. He shuns AAA-rated issues.
A triple-A issue "has only one way it can go."
Marshall also doesn't buy corporates with maturities longer than 10 years. Asked why, he replied, "Credit risk -- you just don't know what's going to be happening out there. "
He pointed to Walt Disney Co.'s 100-year issue, which was increased on Wednesday to $300 million from $150 million.
"Can you imagine the impact of the downgrade of a 100-year bond?" Marshall said. The effect of a downgrade on a two-year bond is substantially less than a downgrade on a 10-year issue, he said.
As for the direction of interest rates, Marshall thinks that rates will continue to trend lower, except for a small upward blip due to rebuilding following the Mississippi River flooding.
In secondary trading, spreads on high-grade issues were unchanged. High-yield bonds ended unchanged to 1/4 point lower.
New Issues
Seagull Energy Corp. issued a two-part offering totaling $250 million.
The first tranche consisted of $100 million of 7.875% notes due 2003 at par. The noncallable notes were rated Ba2 by Moody's and BB-plus by Standard & Poor's. The second pIece consisted of $150 million of 8.625% senior subordinated notes due 2005 at par. Noncallable for seven years, the notes were rated Ba3 by Moody's and BB-minus by Standard & Poor's. Dillon, Read & Co. was lead manager of the offering.
Chrysler Financial Corp. issued $240.5 million of 5.33% extension notes due 2008 at par. The noncallable notes were priced to yield 115 basis points over two-year Treasuries. Moody's rates the offering Ba1, while Standard & Poor's rates it BB-plus. Morgan Stanley & Co. was sole manager of the offering.
Federal Home Loan Mortgage Corp. issued $100 million of 3.97% step-up notes due 1996 at par. The notes are noncallable for a year, after which the coupon steps up to 5%. The internal rate of return is 4.64%. UBS Securities Inc. sole-managed the offering.
Savannah Electric issued a two-part first mortgage bond offering totaling $45 million. The first tranche consisted of $20 million of 6.375% bonds due 2003. Noncallable for five years, the bonds were priced at 99.667 to yield 6.420% or 57 basis points over comparable Treasuries. Salomon Brothers won competitive bidding to underwrite the offering.
Part two consisted of $25 million of 7.4% bonds due 2023. Nonrefundable for five years, the bonds were priced at 98.523 to yield 7.524% or 90 basis points over comparable Treasuries. Lehman Brothers won competitive bidding to underwrite the offering. Moody's rates the bonds A 1, while Standard & Poor's rates them A.
