Differences over the appropriate benchmark for pricing 30-year corporate bond offerings scuttled part of a new issue by Corning Inc. yesterday.
In the morning, Corning and its senior manager, Lazard Freres & Co., began soliciting bids on $100 million of 10-year notes and $100 million of 30-year bonds, according to market participants.
In preliminary price talk, notes of the well-known glass and lab equipment manufacturer were offered for 45 to 50 basis points more than the 10-year benchmark Treasury note. The company's 30-year bonds were offered for 60 basis points more than the 30-year Treasury bond.
But portfolio managers said they expected the 30-year corporate issue to be priced 60 basis points more than the Treasury's old benchmark bond, which was replaced earlier this month. The new benchmark 6 1/4% bond is due in August 2023, while the old 7 1/8% bond is due in February 2023.
Because the new benchmark Treasury bond is in short supply, and the Treasury has curtailed 30-year bond auctions, the new bond's price has risen dramatically and it yields up to 15 basis points less than the old bond.
"Look, there is an anomaly in the Treasury market, and I don't think I should have to pay 15 basis points for that in the corporate market," one portfolio manager declared yesterday.
But Corning officials apparently had a different point of view.
The 10-year piece of the deal was priced to yield 6.10%, a spread of 50 basis points more than the benchmark Treasury. The noncallable notes are rated A2 by Moody's Investors Service and A-plus by Standard & Poor's Corp.
But the 30-year piece was not sold.
A Corning spokesman said the 30-year portion was not sold "because we could not get the pricing we wanted." The entire offering is part of the company's plan to sell $200 million in debt and $400 million in equity to fund the purchase of Damon Corp.
Officials at Lazard declined to comment.
But one source familiar with the underwriting of the deal dismissed the benchmark controversy. "People can make things up, and that's all I have to say," the source said.
The 30-year portion could be priced later this week, sources said, if the parties involved can agree on the appropriate benchmark.
Meanwhile, the forward calendar is piling up. Yesterday, USWest Capital Funding Inc. filed with the Securities and Exchange Commission for a debt offering of up to $800 million. On Friday, Pennzoil Corp. filed a shelf of $500 million, and the Province of Ontario filed for $2 billion of debt.
In the below-investment grade arena, NL Industries filed for $350 million of new debt, and Texas Eastern Transmission Corp. filed to sell $200 million of new debt.
In the secondary market, spreads on investment grade bonds narrowed three to five basis points. Below-investment grade bonds were mixed in moderate trading.
Over the past week, active trading in the junk market has lifted bonds of cellular telephone companies.
American Telephone & Telegraph Co.'s announced merger with McCaw Cellular Communication has sparked hopes that more cellular mergers may be in the offing, traders said. Some investors speculate that other major communications players will follow AT&T's lead and gobble up more cellular companies.
Bonds of Comcast Cellular Corp., for example, were up 2.4% last week. The company's zero-coupon bond due in 2000 was up almost 1.5 points to 58.13, according to market analysts at First Boston Corp.
New Issues
The Federal National Mortgage Association issued $200 million of real estate conduit securities in a deal managed by Daiwa Securities America Inc. The collateral backing the securities is comprised of two principal-only strips that are made up of FNMA 30-year, 7% mortgage securities.
FNMA also issued $100 million of conduit mortgage securities in a deal managed by Donaldson, Lufkin & Jenrette Securities. Collateral was comprised of FNMA 30-year, 7.5% mortgage securities.
The Tennessee Valley Authority sold $50 million of first installment series bonds due 1994 managed by Goldman, Sachs & Co. The noncallable issue was priced at par to yield 3.45%, a spread of five basis points more than comparable Treasuries.
Rating News
Late Friday, Moody's announced that it would follow Standard & Poor's by lowering the long-term debt rating on Apple Computer Inc.'s upcoming $500 million offering.
Moody's cut Apple's rating to Baa1 from A2. The two-notch cut was more severe than Standard and Poor's one-notch cut last Thursday to A-minus from A.
Moody's also lowered its rating on Apple's short-term commercial paper obligations to Prime-2 from Prime-1. Standard & Poor's cut Apple's short-term rating to A-2 from A-1.
