The capital markets unit of NationsBank Corp. is expected to come to market in the next week with $100 million in high-yield senior subordinated notes for Costilla Energy.
The bonds, in conjunction with a public stock offering, would refinance bank debt - also led by NationsBank - for the Midland, Tex.-based oil and gas company.
The high-yield or junk bond deal would allow NationsBank to remain in the coveted lead position with a growing company, even though the company is replacing its bank debt.
The deal would further increase its visibility among banks that are building high-yield bond capability to complement their leveraged-lending operations.
Chase Manhattan Corp. and Bankers Trust New York Corp. have consistently ranked in the top 10 in leading junk bonds during the past year.
"One of the many benefits to one-stop shopping is that it gives the bank the ability to go to whatever market makes the most sense," said Arthur F. Penn, a managing director in BT Securities Corp.'s high-yield business.
Providing high-yield expertise not only allows a commercial bank to stay with a customer through different markets, it allows the bank to generate some attractive fees.
The typical leveraged loan provides the arranging bank with 2% fees. On a high-yield deal, it can be closer to 3%.
The high-yield market, which typically tracks the stock market, has been very active this year. Mutual fund in-flows have created a receptive market for new issues, including those in the energy sector.
"It's been a healthy year so far for issuers and investors," said Steven N. Ruggiero, a managing director in high-yield securities research at Chase Securities Inc. The energy sector is generally performing better than the average junk bond deal.
Junk bonds provide growing companies with long-term funds that have looser covenants than bank loans and no amortization schedule.
Although still behind the pace of Bankers Trust and Chase, NationsBank has started winning lead positions on junk bonds this year.
Through the middle of August, NationsBank led more than $285 million in junk bonds this year, up from zero in the same period in 1995, according to Securities Data Co.
Separately, Chase Securities priced a $75 million high-yield private placement Tuesday for Core-Mark International Inc. The seven-year deal was priced with a coupon of 11.375%, according to market sources.
The proceeds for the four-year, noncallable deal will fund a recapitalization by the San Francisco company, which distributes cigarettes, food, and other products to convenience stores.