GTE Corp. yesterday said it has called $2.1 billion of high-coupon debt issued by five of its telephone operating subsidiaries.
"It's something they [bondholders] should have expected," said Joseph A. Beatty, a telecommunications analyst at Duff & Phelps/MCM Investment Research Co. "The fact that they weren't called any sooner was probably a surprise to the bondholders."
Coupons on the debt being called, all first mortgage bonds, range from 7 7/8% to 11 3/4%.
When the bonds are refinanced at current interest rates, the net after-tax savings for GTE will be roughly $250 million over the life of the bonds, according to Harvey W. Greisman, a GTE spokesman.
GTE will take an extraordinary after-tax charge of $90 million, or about 10 cents a share, against third-quarter earnings, reflecting the expenses of calling the bonds.
"This is part of a continuing program to reduce the cost of debt from time to time," Greisman said.
Asked what role low interest rates played in GTE's decision to refinance the debt, he replied, "That's always a factor, but we try to spread this kind of financing out over time." One reason GTE likes to spread out such transactions is because it doesn't want to flood the market with securities all at once, Greisman said.
To fund the calls, "we will issue commercial paper initially and then refinance from there with long-term debt," Greisman said.
Beatty said the move is positive from a credit standpoint.
"It's going to lower their interest expense and increase their pretax interest coverage, which is a key measure of credit protection," Beatty said.
The transactions will bring total redemptions of high-coupon debt by GTE and its subsidiaries since early 1992 to $4.3 billion.
GTE California first mortgage bonds being called are: 11% series NN bonds due 2015 at 105.82%, 10.125% series AA bonds due 2009 at 105.24%, 9.375% series PP bonds due 2026 at 105.65%, 9.25% series V bonds due 1999 at 102.12%, 8.875% series Z bonds due 2008 at 104.16, 8.625% series SS bonds due 2016 at 104.64%, and 8.50% series Y bonds due 2007 at 104.05%.
GTE Florida first mortgage bonds being called are: 10% series CC bonds due 2028 at 107.92%, 9.375% series S bonds due 2005 at 103.46%, 8.75% series Z bonds due 2026 at 105.46%, 8.625% series M bonds due 2000 at 101.73%, 8.25% series T bonds due 2006 at 103.70%, and 8.125% series P bonds due 2003 at 102.26%.
GTE North first mortgage bonds being called are: 9.25% bonds due 2005 at 103.13%, 9.375% bonds due 2005 at 103.37%, 9.25% bonds due 2005 at 103.51%, 9% bonds due 2006 at 103.41%, 9% bonds due 2016 at 105.38%, 9.375% bonds due 2016 at 105.61%, 9.125% bonds due 2000 at 101.84%, and 9% bonds due 2000 at 102.17%.
GTE Northwest first mortgage bonds being called are: 9.375% series X bonds due 2008 at 104.53%, 9.25% series S bonds due 2000 at 101.91%, and 9.75% series DD bonds due 2017 at 104.52%.
GTE Southwest first mortgage bonds being called are: 11.75% bonds due 2015 at 107.73%, 10.375% bonds due 2017 at 106.46%, 10.125% bonds due 2015 at 104.36%, 9.875% bonds due 2005 at 103.79%, 9.25% bonds due 2000 at 101.91%, 8.875% bonds due 2016 at 104.31%, 8.375% bonds due 2007 at 103.42%, 8.125% bonds due 1996 at par, and 7.875% bonds due 2001 at 101.97%.
In secondary trading yesterday, spreads on high-grade bonds were unchanged to wider by a basis point, according to Phil Kazlowski, head trader at Citicorp Securities Inc.
"It's kind of a quiet Monday," Kazlowski said. He noted that current coupon long telephone and utility issues have widened seven to 10 basis points over the past month or so. The combination of callable paper, rising volatility, and hefty issuance triggered that widening, Kazlowski said.
As for new issues, "This week's calendar doesn't look to be as big as two weeks ago, for example," Kazlowski said. But the level of issuance will hinge on what the market does, he said. If the long bond stays below 6%, as it was by late yesterday, that could draw more issuers in."
No new issues had been priced by late yesterday.
The high-yield market ended a quiet day mixed.
In other news, Bankers Trust New York Corp. on Friday filed a shelf registration with the SEC covering up to $1 billion of debt and preferred stock.
Bankers Trust spokesman Doug Kidd yesterday said that the company will use proceeds of an offering for "general purpose." Kidd said he did not believe underwriters have been named.
Standard & Poor's Corp. has placed the AA long-term debt ratings of the Province of Ontario and Ontario Hydro, which is provincially guaranteed, on Credit Watch for a possible downgrade.
The action affects about $33 billion of debt, a Standard & Poor's release says.
The rating agency affirmed its A-1-plus rating on Ontario and Ontario Hydro's commercial paper programs. Those ratings were unaffected by the Credit Watch placement, the release says.
"This action reflects uncertainty regarding the province's commitment to meeting the deficit reduction plan outlined in its May 1993 budget in the face of revenue slippage," Standard & Poor's said in its release. "Information released last week indicates that provincial revenues for fiscal 1993-1994 are likely to be about 2% lower than budgeted."