High-yield private placements plummeted 75% in the first half of this year, to $1.6 billion from $6.3 billion in the same period last year, while placements overall fell less severely, according to Securities Data Co.
"The insurance companies have a lot of problems buying [high-yield private placements]," a source at Kidder, Peabody & Co. said yesterday in explaining the sharp decline. Kidder captured first place among high-yield agents in the first half of this year, followed by PaineWebber Inc. and Donaldson, Lufkin & Jenrette Securities Corp.
"A lot of insurance companies have put a flat-out prohibition on buying anything that's not an NAIC 2," the source continued. An NAIC 2 -- National Association of Insurance Commissioners -- rating is equivalent to a Standard & Poor's Corp. BBB rating or a Moody's Investors Service Inc. Baa.
Many insurers have turned away from the junk market because of highly publicized insurance company failures and stiffer NAIC reserve requirements.
But insurers without portfolio problems -- such as Teachers Insurance and Annuity Association, Northwestern Mutual Life Insurance Co., and Metropolitan Life Insurance Co. -- still shop for high-yield offerings, the Kidder source said.
The source remains optimistic about the high-yield private market this year, noting that many issuers find the private placement with registration rights route especially attractive.
With its first-place finish, Kidder improved significantly over its seventh place position last year. The firm's $467.5 million of deals more than doubled the dollar volume of its nearest competitor PaineWebber, which totaled $240.2 million.
"We've added some people who have specific high-yield backgrounds," the Kidder source said. "High-yield is still a very important market category for us," he explained. "We kept our high-yield trading desk intact, and that was critical."
With $231.9 million, Donaldson Lufkin finished third. Goldman, Sachs & Co. showed the most dramatic improvement in high-yield privates, moving from 12th place to fifth with $210.5 million in deals.
Not surprisingly, Goldman emerged the clear winner in the first-half private placement agent race overall, with $3.3 billion more in deals than its nearest competitor J.P. Morgan & Co., according to Securities Data.
With certificates of deposits and deposit notes excluded, Goldman tallied 102 deals totaling $8.02 billion, giving it a 15.3% market share. Last year the firm completed 124 deals totaling $9.46 billion for a 16% market share.
Overall, excluding certificates of deposit and deposit notes, the private placement market declined to $52.3 billion in deals in the first half of this year, from $59.1 billion in deals in the first half of 1990.
J.P. Morgan clinched the No. 2 spot for the second consecutive year, with 57 transactions totaling $4.71 billion for a 9% market share. Last year, the bank handled 80 issues totaling $5.95 billion, a 10.1% market share.
Salomon Brothers improved last year's fourth-place finish to third this year, with 98 deals totaling $4.44 billion of issues to capture an 8.5% market share. Merrill Lynch & Co. traded places with Salomon to finish fourth with 96 deals totaling $4.10 billion and a 7.8% market share.
Rounding out the top 10 were: Lehman Brothers with 125 deals totaling $3.44 billion for a 6.6% market share; First Boston Corp., with 53 deals totaling $3.25 billion for 6.2%; Morgan Stanley, with 43 deals totaling $3.15 billion for 6.0%; Citicorp, with 39 deals totaling $2.95 billion for 5.6%; Kidder with 37 deals totaling $2.46 billion for 4.7%; and Chase Manhattan Bank N.A., with 37 issues totaling $2.20 billion for a 4.2% market share.
Kidder showed the most dramatic improvement, rising nine spots from 18th place during the same period last year.
Goldman was also the clear leader in the Rule 144A sector, with 46 issues totaling $2.12 billion for a 25% market share. Lehman Brothers was a distant second with 61 deals totaling $1.45 billion for a 17% share. Chemical Bank was third with seven issues totaling $980.9 million for an 11.6% market share.
Total Rule 144A volume jumped to $8.48 billion, from $1.51 billion in 1990. The surge came as no surprise, because Rule 144A was enacted in April 1990.
Goldman Sachs Vice President Richard Coppersmith said a trend toward more foreign issuers in the United States continues. That trend, which began with Rule 144A's passage, now includes more BBB foreign issuers -- not just the A credits the market is used to seeing, he said.
Overall, with insurers having troubles, the trend toward quality should continue this year, Mr. Coppersmith said.
Elsewhere in private placements, attractive rates led Lyondell Petrochemical Co., an Atlantic Richfield subsidiary, to initiate a $150 million medium-term note program.
The private placement contains maturities ranging from one to 15 years. Proceeds from the notes' sale will be used for general corporate purposes and to repay 1992-1992 debt as it comes due. The placement will enable Lyonell to lengthen the average maturities of its long-term debt.
In the public markets, high-yield was quiet and up about a 1/4 point late in the day, while high grades were flat to down a 1/4, traders said.