Junk issuers that have rushed to market since Labor Day have "shot themselves in the foot," one buy-side source said yesterday.
"The calendar got huge between September and October," said the source, who now has 18 deals on his desk instead of the four or five he usually handles.
The large number of new issues prevents investors focusing, the source said.
"I can't do homework on 15 deals," he said.
The new supply logjam has stalled some deals and means issuers are going to have to pay more to borrow, the source said.
"It's simply supply versus demand, and someone dropped out of economics class early," he said. "We are overwhelmed with deals and I've got recent losses in the new deals that I thought were good."
But a second buy-side source said that despite the high number of deals, everything would have been fine if it had not been for the troubles in the stock and high-yield bond markets.
"It's because the market traded off, that's why sellers of bonds are going to pay more," he said.
The first source added that he was not blaming Wall Street for the glut. When firms like Donaldson, Lufkin & Jenrette Securities Corp. and Merrill Lynch & Co. have turned away issuers, some of them have turned to less likely underwriters who appreciate the business, he said.
"He's correct," another high-yield market participant said, adding that he was more concerned with the credit quality than the timing of the deals.
As for new high-grade issues, Rhone-Poulenc S.A. led an eclectic band yesterday.
"It's not just utilities refinancing, it's not just finance companies making rate calls," one new-issue watcher said, adding that such variety has characterized the market in recent weeks.
One high-grade buy-side source described a deal by the Province of Newfoundland as "a bargain."
In secondary trading, both the high-yield and high-grade markets were still abuzz over Marriott Corp.'s announcement Monday to divide operations in two.
"It's like an earthquake," one high-grade trader said.
"It's going to get uglier," a buyside source noted.
High-yield bonds, finished unchanged to off 1/4 point. High-grade bonds finished up with Treasuries, which gained 3/8 in the 30-year sector.
Rhone-Poulenc issued $500 million of 6.75% notes due 1999. The noncallable notes were priced at 99.337 to yield 6.871% or 87 basis points over comparable Treasuries. Moody's Investors Service rates the offering A2, while Standard & Poor's Corp. rates it A. Lehman Brothers won competitive bidding to underwrite the offering.
USX Corp. issued $300 million of 9.125% debentures due 2013. The noncallable debentures were priced at 99.795 to yield 9.15% or 170 basis points over 30-year Treasuries. Moody's rates the offering Baa3, while Standard & Poor's rates it BBB-minus. J.P. Morgan Securities Inc. lead managed the offering.
Province of Newfoundland issued $200 million of 8 .65% debentures due 2022 at par. The noncallable debentures were priced to yield 120 basis points over comparable Treasuries. Moody's rates the offering Baa1, while Standard & Poor's rates it A-minus. Merrill Lynch & Co. lead managed the offering.
Jersey Central Power & Light issued $160 million of 7.125% first mortgage bonds. Noncallable for 10 years, the bonds were priced at 99.616 to yield 7.173 or 77 basis points over 110-year Treasuries. Moody's rates the offering A2, while Standard & Poor's rates it A-minus. Smith Barney, Harris Upham & Co. won competitive bidding to underwrite the offering.
Federal Home Loan Banks issued $155.7 million of 3.81% noncallable notes due 994 at par. Morgan, Stanley & Co. sole managed the offering.
Occidental Petroleum Corp. issued $150 million of 4.75% senior medium-term notes due 1994. Noncallable for 10 years, the bonds were priced at 99.85 to yield 4.83% or 95 basis points over comparable Treasuries. Moody's rates the offering Baa2, while Standard & Poor's rates it BBB. Merrill Lynch lead managed the offering.
Private Export Funding Corp. issued $150 million of 5.75% secured noted due 1998. The noncallable notes were priced at 99.904 to yield 5.77% or 40 basis points over comparable Treasuries. Moody's and Standard & Poor's rate the offering triple-A. Citicorp Securities Markets Inc. lead managed the offering.
Federal Home Loan Banks issued $124 million of 4.40% notes due 1995 at par. Noncallable for a year, the notes were priced to yield 13 basis points over comparable Treasuries. Merrill Lynch managed the offering.
Federal Home Loan Banks issued $107 million of 5.59% debentures due 1997 at par. Noncallable for a year, the debentures were priced to yield 24 basis points over comparable Treasuries. Lehman Brothers managed the offering.
Imperial Holly issued $100 million of 8.375% senior notes due 1999 at par. The noncallable notes were priced to yield 237.5 basis points over when-issued seven-year Treasuries. Moody's rates the offering Ba1, while Standard & Poor's rates it BBB-minus. Smith Barney, Harris Upham & Co. managed the offering.
Federal Home Loan Banks issued $35 million of 6.93% debentures due 2002 at par. Noncallable for three years, the debentures were priced to yield 53 basis points over comparable Treasuries. First Union Securities Inc. managed the offering.
Genesis Health Ventures issued $25 million of 9.25% first mortgage bonds due 2007. The bonds are callable after five years at 106, declining 1% a year to par in 2003. Moody's and Standard & Poor's did not rate the issue. J.C. Bradford & Co. lead managed the offering.
Moody's has given a B2 rating to Welbilt Corp.'s proposed $100 million of senior notes due 1999. The rating agency also raised Welbilt's senior subordinated debt to B3 from Caa.
"Moody's rating actions reflect the company's high leverage and thin coverage, but are moderated by a leading industry position and the infusion of additional equity, albeit in modest amounts," a Moody's release says.
Standard & Poor's has upgraded Long Island Lighting Co.'s preferred stock rating to BBB-minus from BB-plus and affirmed ratings on LILCO's BBB senior secured debt and BBB-minus senior unsecured debt.
About $721 million of preferred stock was outstanding as of June 30.
"The upgrade reflects steady improvement in LILCO's financial profile due to ongoing rate relief, manageable construction spending, and reduced capital costs due to an aggressive refinancing program," a Standard & Poor's release says.