Several companies that have turned to the high-yield-bond market have found a hungry and receptive investor base.
In the past week, Commonwealth Aluminum and First Nationwide Bank were both able to issue more junk bonds at a cheaper rate than originally planned.
Commonwealth, a Louisville, Ky.-based aluminum sheet manufacturer, on Monday increased the size of its junk bond offering to $125 million from $100 million, and decreased the yield to approximately 10.75% from 11.5%. Morgan Stanley & Co. and Natwest Group led the offering.
The Smith Barney-led bond deal last week for First Nationwide's acquisition of another California thrift, Cal Fed Bancorp, also rose - to $575 million from $525 million - even as its price was cut to approximately 10.625%, from between 10.75% and 11%.
Such market developments are of keen interest to large commercial banks. Lured by the prospects of hefty fees and rising customer demand, many banks have been revving up high-yield bond underwriting groups.
Banks that have been particularly successful in grabbing market share include Chase Manhattan Corp. and Bankers Trust New York Corp. Among those developing junk bond operations: Societe Generale, Deutsche Bank, and Bank of Boston Corp.
"It's a very sanguine environment for high-yield right now, because of a low inflation environment and a stable to improving economy," said Steven A. Ruggiero, a managing director in high-yield securities research at Chase Securities Inc. "People don't foresee that changing in the near future."
"We could have sold several hundred millions dollars of bonds," said Donald Marsh, the chief financial officer and corporate secretary at Commonwealth, which will use the proceeds to back its acquisition of Castech Aluminum.
The total assets in mutual funds that invest in junk bonds has increased to approximately $7.2 billion as of Sept. 11, up 24% from a year earlier, according to AMG Data Services, Arcata, Calif.
Natwest didn't enter the junk bond business until May, and the Commonwealth issue is its first co-lead assignment.
Max Holmes, Natwest's director of high-yield research, said the bank was "pleased" with market response, and plans to return with several other deals soon.
Mr. Marsh, Commonwealth's chief financial officer, said that Natwest won a lead position on the bonds through a well-coordinated commercial banking effort, and provided a voice of compromise that helped the company and investors.
To be sure, the cash-rich junk bond market has had a selective appetite. "It's somewhat of a bifurcated market," said Tom Haag, who manages two high-yield funds for Lutheran Brotherhood, Minneapolis. "The weaker part may start to get sloppy, while the better credits are in high demand."
