$125 Million Note Deal Set by P&C Food Comes With the Right Price, Analysts Say

P&C Food Market Inc.'s $125 million senior note deal, scheduled to be priced today, is expected to yield in the 11 1/2%-to-11 3/4% range, which is where analysts say it should be.

"The Varity [Corp.] deal, also senior notes, was 11 3/4 earlier in the week, I would say this is right on target," one trader said Friday.

Steven L. Patricola, a vice president at BT Securities Inc., agreed the deal could be done within the 11 1/2% to 11 3/4% context. The notes mature in 2001.

"The market is still quite strong, and demand for new issues remains robust," he said.

Ross Margolies, a high-yield analyst at Lehman Brothers, added, "I think that's a fair range to expect. I think it should be priced about 50 basis points richer than the senior sub on a yield-to-worst basis."

P&C Food's $185 million of senior subordinated debt, by one analyst's estimate, was trading at 12 1/4 on a yield-to-worst basis.

Yield-to-worst is a basis for comparing bond prices that takes into account that a bond may be called before maturity.

Sheila O'Connell, an analyst with Duff & Phelps/MCM Investment Research Co., says she thinks pricing will be closer to 11 3/4%.

A P&C Food spokesman provided information contained in the prospectus, but declined to comment on the deal.

P&C Foods will use proceeds from the deal, managed by Salomon Brothers, to refinance some bank lines, as well as to take out $26 million preferred stock and repurchase some of its outstanding $185 million of 13 3/4% senior subordinated notes due 1998, she said.

"It reduces all their debt amortization for the next couple of years," Ms. O'Connell said, adding that the company will not have to pay back any of that debt until about 1994.

The lack of bank amortization will give the company more cash to spend on its stores, she said. Syracuse, N.Y.-based P&C Food may add a few stores, but will mainly concentrate on upgrading its current operations, she said. It currently operates 65 P&C Foods retail supermarkets and franchises 68 "Big M" stores, Ms. O'Connell said. It also provides wholesale services to 97 independent food retailers, she said.

A merger deal that will give P&C Food's parent, the Penn Traffic Co., 100% ownership of the company hinges on the bond deal's completion, Ms. O'Connell said, adding that all signs point toward its success.

Penn Traffic currently owns 90% of the company with the remainder split almost equally between Salomon and P&C Food's former management, she said.

"I think the covenants in this particular issue are particularly strong," O'Connell added.

Moody's Investors Service Inc. rates the offering Ba3, while Standard & Poor's Corp. rates it B.

Elsewhere in high-yield, price talk on American Medical International Inc.'s $100 million senior note deal is expected possibly today.

Overall the high-yield market was up about 3/16, while high-grade corporates were quiet and up about an 1/8 to 3/8 of a point, traders said.

As for yesterday's ratings actions, Standard & Poor's downgraded Maine Yankee Atomic Co.'s and Vermont Nuclear Power Corp. senior secured debt to A-minus from A.

The agency has removed the ratings from CreditWatch where they were placed Aug. 14 with negative implications. Maine Yankee Atomic Power has some $56 million or rated debt outstanding, while Vermont Yankee Nuclear Power has about $44 million. Standard & Poor's action reflects the downward trend in recent years of the aggregate credit quality or the participating utilities.

Duff & Phelps assigned an AAA rating to Sears Credit Account Trust 1991 D 7.75% $500 million of pass through certificates. The trusts consists of about $642.4 million of principal receivables from Sears Charge Accounts, Discover receivables excluded.

"This AAA rating is based on our confidence in Sears, Roebuck and Co., the high credit quality of the receivables, the legal structure of the transaction, and the amount of available subordinated credit enhancement," the agency said in its release.

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