Pricing on two junk issues Friday demonstrated that investors are sometimes more concerned with the story a company tells than the ratings it carries.
Color Tile Inc., a company that sells building supplies, sold an issue carrying higher ratings than an offering by Argyle Television Operations Inc., a preferential-tax business in a higher-profile industry. But investors were willing to accept a lower yield on the Argyle issue, while receiving a better deal than expected on the Color Tile issue.
The Color Tile deal, the largest of the day, was a $200 million, eight-year senior note issue that was rated B2 by Moody's Investors Service and B by Standard & Poor's Corp.
The deal was priced to yield 10.75% by senior manager Bear, Steams & Co., about 25 basis points above preliminary price talk.
Building supplies is a rebounding business, but hardly one of the sexy, high-growth sectors that high- yield investors crave.
By contrast, Argyle Television owns and operates television stations. The company benefits from preferential tax treatment because it is a minority-controlled business.
Argyle sold a $150 million 10-year subordinated issue, with less call protection than the Color Tile deal, but investors accepted a yield of just 9.875%. Preliminary price talk ranged from 9.875% to 10.25%. In addition, the issue was rated B3 by Moody's and B-minus by Standard & Poor's.
Argyle, a subsidiary of Argyle Television Holdings Inc., owns two TV stations, an NBC affiliate in Birmingham, Ala., and an ABC affiliate in St. Louis. The company also has an agreement to purchase CBS affiliates in Dallas and Austin, Tex,
According to Moody's, Argyle "is classified as a minority controlled entity and therefore enjoys certain tax benefits. These tax advantages increase this highly leveraged company's access to capital and augments its financial strength."
This week, underwriters plan to bring several more junk deals to market. Public new issues are expected from ICF Kaiser International and Sequa Corp., and a 144A deal is expected from Bally's Grand.
In the secondary market Friday, below-investment grade bonds outpaced higher-rated issues. Junk issues were up 1/4 to 3/8 in quiet trading, while investment grade issues sank in line with the Treasury market. Spreads on investment grade issues tightened slightly.
Cable bonds were especially strong following recent announcements by cable and telephone companies of mergers and joint venture agreements. Continental Cable's 10 5/8% notes due in 2002 were up a 1/2 point to 113 5/8% bid.
Friday's New issues
Color Tile's $200 million deal consisted of 10 3/4% senior notes due in 2001. The notes, noncallable for four years, were priced at par to yield 10.75%. Bear, Steams & Co. managed the issue.
