Citicorp and Chase Manhattan Corp. issued a total of $550 million in subordinated debt Tuesday, taking advantage of low rates and strong investor interest.
Citicorp floated $350 million of 12-year notes priced to yield 6.75%, or 98 basis points over what U.S. Treasury notes were being sold at in advance of their sale later in the week.
The bonds are likely to sell well at their issue price, said one bond analyst.
Citicorp bonds have rallied this year because of the bank's improved earnings and credit quality, as well as investors' expectations that more improvement is in store.
10-Year Debt Rallying
Since yearend 1992, Citicorp's 10-year subordinated debt has rallied. On Tuesday it was trading at 85 basis points above Treasuries, down from 180 basis points in December. "Certainly the bank's spreads are as tight as they've ever been since 1990," said John Works, bond analyst with J.P. Morgan Securities.
But investors still view Citicorp as weaker than its New York City rivals. The yield on Citicorp's new 12-year subordinated bonds is a few basis points higher than the yield on a similar outstanding Chase issue. And it would yield about 10 basis points more than a comparable Chemical Banking Corp. issue, according to a market source.
Refinancing Seen as Goal
Based on recent comments to investors by a Citicorp executive vice president, Tuesday's offering was aimed at reducing borrowing costs. The executive, Thomas Jones, said he expected all subordinated debt raised this year to be used to refinance outstanding issues, rather than to build capital.
Goldman, Sachs & Co. led the issue, rated Baa2 by Moody's Investors Service and BBB plus by Standard & Poor's Corp.
Chase issued $200 million of 15-year subordinated notes. They were priced to yield 6.80%, or 103 basis points over the when-issued 10-year Treasury. Market participants said the issue was aggressively priced, and unlikely to sell out at that rate.
NBD Issue Expected
Since being upgraded by Moody's on July 2, Chase has raised $750 million of subordinated debt in the U.S. and Euro-markets, according to Securities Data Co. Its 10-year debt has rallied, spurred by improving credit quality and earnings. The yield-spread over Treasuries has shrunk by 60 basis points since December.
Separately, market sources said NBD Bancorp is expected to issue $200 million of subordinated debt on Wednesday through a bank subsidiary.