Three banking companies tapped the capital markets on Thursday for $750 million in senior and subordinated debt.
A $150 million issue of Chase Manhattan Corp. floating-rate subordinated notes was priced at a substantially lower yield than a fixed-rate offering.
Chase also took advantage of a recent upgrade by Moody's Investors Service.
Floor of 4.35%
The 10-year note has a coupon of 12.5 basis points over the London interbank offered rate, with a 4.35% minimum rate, known as a floor."
Investment bankers said Chase saved 10 to 20 basis points by issuing floating-rate debt with a floor instead of offering fixed-rate debt and swapping into a floating-rate payment stream.
Demand for floating debt with floors has increased recently because banks have called substantial amounts of these securities - issued in the 1980s at high interest rates.
Officials at Bear, Stearns & Co., the sole manager, declined to comment. Chase officials could not be reached by press time.
Chase debt securities have rallied in the secondary market this year on improving earnings and expectations of rising credit ratings.
Its 10-year subordinated debt was bid Wednesday at a yield equal to 93 basis points over the 10-year Treasury note. This compared to 97 basis points at the end of May and 102 basis points at the end of April, according to First Boston Corp.
Last Friday, Moody's upgraded Chase's subordinated d Baa2 from Baa3 and senior debt to Baa1 from Baa2.
Elsewhere in the market, Marshall & Ilsley Corp., Milwaukee, issued $100 million of 10-year subordinated notes. The noncallable notes were priced to yield 6.46%, 68 basis points over the 10-year Treasury note. Goldman, Sachs & Co. was lead manager.
PNC Bank issued $500 million of one-year bank notes. The notes were priced initially to yield 3.55% by underwriters led by Goldman Sachs.