Fred Meyer Inc., a Portland, Ore., grocery chain, is expected to sell a two-part, $1.5 billion junk bond deal this week, as the high-yield market continues to attract both issuers and investors.
Twenty-seven junk bond deals worth $4.6 billion were priced last week, according to Salomon Smith Barney, while $383.7 million flowed into high- yield mutual funds, according to AMG Data Services, Arcata, Calif.
"We're pretty positive on the economy and the inflation outlook and bullish on the stock market," said Kevin Mathews of Pilgrim America High Yield Fund, Phoenix.
"The high-yield market will follow and continue to perform very well versus higher-quality alternative fixed-income investments."
Salomon Smith Barney and Donaldson, Lufkin & Jenrette Securities Corp. were readying the Fred Meyer issue last week. It would be one of the largest in the high-yield market to date.
The bonds were rated BB-plus by Standard & Poor's but will be sold through Salomon Smith Barney's investment-grade desk. Fred Meyer is considered a strong company whose bonds will appeal to both high-grade and high-yield investors.
Proceeds of the offering will go to retire debt incurred from several acquisitions, including Smith's Food & Drug Centers Inc., Quality Food Centers Inc., and Ralphs Grocery Co.
Market watchers expected the issue to be well-received, despite the recent troubles of other supermarkets, like Bruno's Inc. and Grand Union.
"Those entities were not well run, not in the most attractive markets, and they were overleveraged," said analyst Ronald Buck of Standard & Poor's. "Fred Meyer has a well-managed operation, a proven track record, and high operating margins in the industry."
Among the new issues priced last week, Goldman, Sachs & Co. and Chase Securities Inc. completed a $115 million private placement of senior subordinated notes Thursday for Frank's Nursery & Crafts Inc., a Detroit seller of lawn and garden products.
Chase and Goldman led a $195 million loan to finance the December buyout of the company by the Cypress Group.
Last week Merrill Lynch & Co. led a team of underwriters on a two-part, $400 million issue for Beckman Coulter Instruments Inc.
The offering was originally set for September but was delayed because of problems in the market reflecting the Asian financial crisis.
Citicorp and Merrill Lynch had led a $1.3 billion loan last fall to help the Fullerton, Calif.-based maker of medical instruments acquire Coulter in October.
Natwest Securities Inc. priced a two-part issue for NSM Steel Inc. that includes a $250 million piece of 12% senior mortgage notes, due 2006, and $200 million of 12.25% senior subordinated mortgage notes.
