New issues continued to flood the high-yield market last week, amid strong demand.
"The market has held relatively well, considering what's been happening in Treasuries and in the stock markets," said Robert Glickstein, co-head of high-yield trading, research, and sales at PaineWebber Inc. "New issuers continue to access our market, and firms that have not previously been able to access it are finding a place there," Mr. Glickstein added.
Because new-issue flow has been so intense, secondary trading has slowed, said Frank Columbo, head of high-yield research at SBC Warburg Dillon Read. Last month there was $15 billion of new issues, he said.
For issuers, conditions are "close to the best" they have been, Mr. Columbo said. "With money flowing in, it's easy to see why every corporation in America wants to raise money in the high-yield market."
Collateralized bond obligations have continued to be active sources of demand and may offset any outflows from high-yield mutual funds that might occur. Though inflows into the funds have been "incredible" so far, that could change at some point, Mr. Columbo said.
"No one thinks that it's going to continue through the year like this," Mr. Columbo said. "Everything doesn't stay perfect forever." Amid the flurry of new issues, Salomon Smith Barney Inc. priced a $1.75 billion bond offering for Fred Meyer Inc., raising it from the $1.5 billion originally planned.
The offering for the Portland, Ore.-based grocery store chain was sold in three parts: a seven-year $750 million issue priced to yield 7.735%; a $750 million 10-year part priced to yield 7.45%; and a $250 million tranche of five-year notes priced to yield 7.15%.
Donaldson, Lufkin & Jenrette Securities Corp. and BT Alex. Brown Inc. co-managed the issue. Standard & Poor's Corp. rated the issue BB-plus, and two-thirds of the offering was sold to investment-grade buyers.
Toward the end of last week Morgan Stanley Dean Witter & Co. was due to price a $200 million issue of senior subordinated notes for Extended Stay America Inc., a Fort Lauderdale, Fla.-based chain of hotels.
The company, co-founded by George Johnson and H. Wayne Huizenga, will use proceeds to repay debt, to build additional facilities, and for general corporate purposes. Mr. Huizenga built the Blockbuster video chain.
