Standard & Poor's Corp. hauled Chrysler Corp. and Chrysler Financial Corp. out of the junkyard yesterday, restoring the investment grade ratings it stripped in 1991.
"It's something we've been waiting for, and we are delighted with the action, said John R. Ferry, a Chrysler Financial spokesman, adding that the rating move will mean lower borrowing costs for his company. "It's an acknowledgment of the company's management team and strategic direction."
Chrysler issues tightened about 15 basis points, traders said, with most activity in Chrysler Financial paper.
"There's more finance paper than there is company," one trader said.
The rating agency lifted to BBB from BB-plus the senior debt of Chrysler, Chrysler Financial, and Auburn Hills Trust. Chrysler guarantees the Auburn Hills debt. Standard & Pooes also raised Chrysler Financial's subordinated debt and preferred stock ratings to BBB-minus from BBB-minus.
The agency removed the ratings from CreditWatch, where it placed them on June 7. Simultaneously, Standard & Poor's assigned an A-2 commercial paper rating to Chrysler Financial. Consolidated debt outstanding totaled $12.8 billion as of June 30, 1993.
"Well-designed and fortuitously timed new products, coupled with steps to improve operating efficiency, have enhanced Chrysler's competitive position," Standard & Poor's said in its release. "Financial performance in recent quarters has significantly exceeded prior expectations, and some additional growth in earnings and cash flow over the next two to three years is likely."
Also in its release, Standard & Poor's said Chrysler management continues to follow a conservative fiscal policy, stirring confidence that surplus cash generated in future years will be used to further bolster the company's cash reserves and cut its debt liabilities. That course will put the company "in a much better position to weather the next downturn than it was in the past," the rating agency said.
Scott Sprinzen, a director of corporate finance at Standard & Poor's, said the agency cut the Chrysler and Chrysler Financial senior debt to, BB-plus from BBB-minus in February 1991, to BB-minus from BB-plus in June 1991, and to B-plus from BB-minus in January 1992.
Then, beginning earlier this year, the debt improved in three stages. In January, Standard & Poor's upgraded the debt to BB from B-plus. That was followed by February's upgrade to BB-plus from BB, and then yesterday's action.
As for the three other rating agencies, Moody's Investors Service upgraded the senior debt of both Chrysler and Chrysler Financial on Sept. 7 to Baa3, and currently has them on review for a possible further upgrade.
Duff & Phelps Credit Rating Co. rates Chrysler Corp.'s senior debt BBB-minus from BB-plus and Chrysler Financial's senior debt to BBB from BBB-minus. The debt was upgrade in Aug. 11. Fitch Investors Service rates Chrysler Corp. and Chrysler Financial's senior debt BBB. Both were upgraded from BB-plus on July 27.
"The competition will continue to stay rough," said Mary Ann Sudol, a senior vice president at Fitch, yesterday. Competitors have seen the success of Chrysler's jeep and minivans and are coming with products of their own in those categories, Sudol said. Chrysler's challenge is to "keep those crown jewels shining."
In other news, dollar volume of corporate downgrades continued to exceed upgrades during 1993's third quarter, according to preliminary figures released yesterday by Standard & Poor's.
The number of upgrades, however, proved greater than downgrades, the rating agency said.
"This can be attributed to a large number of upgrades among companies with non-investment grade ratings with small amounts of debt outstanding," the Standard & Poor's release says.
The agency lowered ratings on 36 issues totaling $35.8 billion and raised ratings on 59 issues totaling $25.1 billion.
The quarter's notable rating actions included the downgrade of IBM for the second time this year. IBM and affiliated entities saw more than $10 billion of debt lowered to A from AA-minus. IBM's triple-A status was stripped during the first quarter.
Other actions of note included upgrades of Comcast Cellular Corp. to B-plus; Unisys Corp., for its second upgrade this year, to BB-minus; and American Stores Co. to BBB.
"These upgrades characterize the improvement in credit quality that has taken place in the speculative-grade sector," the Standard & Poor's release says.
In secondary trading, spreads on high-grade issues ended a quiet day unchanged. Junk bond prices end up about 1/4 across the board, also in quiet trading.
Abbott Laboratories Inc. issued $200 million 5.60% notes due 2003. The noncallable notes were priced at 99.854 to yield 5.619%, or 30 basis points more than comparable Treasuries. Moody's rates the offering Aa1, while Standard & Poor's rates it AAA. Goldman, Sachs & Co. was lead manager on the offering. Best Buy Co. issued $150 million of 8 5/8% notes due 2000 at par. The notes, which are noncallable for five years, are rated Ba3 by Moody's, while Standard & Poor's rates them B-plus. Goldman Sachs was lead manager.
Southwestern Electric Power Co. issued a two-part first mortgage bond offering totaling $150 million.
The first tranche consisted of $45 million of 5.25% bonds due 2000. Noncallable for five years, the bonds were priced at 99.755 to yield 5.295%, or 40 basis points more than comparable Treasuries.
The second tranche consisted of $80 million of 67/8% bonds due 2025. Noncallable for 10 years, the bonds were priced at 99.293 to yield 6.93%, or 77 basis points more than comparable Treasuries.
Moody's rates the bonds Aa2, while Standard & Poor's rates them Aa-minus. Morgan Stanley & Co. was lead manager on the offering.