Despite sizable declines among U.S. Treasuries, the Province of Ontario's $2 billion global bond deal was fairly well received by investors yesterday, apparently benefiting from a decision by syndicate officials to push up the timing of the sale.
After German officials moved over the weekend to cut key interest rates, underwriters decided to launch the Ontario offering quickly, hoping to position it as the first U.S. dollar-denominated global deal in the market, a syndicate official said.
The Ontario sale was the largest issue priced yesterday and accounted for the bulk of the session's approximately $3.8 billion of high-grade corporate bond issuance.
In trading, the 30-year U.S. Treasury bond fell as much as one point during the session and finished 3/4 point lower, while the five-year note finished 11/32 easier.
Meanwhile, trading among outstanding high grades was choppy, dealers said. In the high-yield market, selected issues moved higher amid moderately active trading.
The Province of Ontario bonds, which mature Oct. 1, 1997, carry a 5.70% coupon. The bonds were originally priced at a 5.8% yield and a spread of 48 basis points over the five-year Treasury bond. Goldman, Sachs & Co. and Merrill Lynch & Co. served as joint lead managers of the deal.
The bonds traded at a spread of as much as 50 basis points over the five-year Treasury, traders said.
The province is rated Aa2 by Moody's Investors Service and AA by Standard & Poor's Corp. The offering marks the province's second direct global bond offering and leaves about $1.5 billion on the province's U.S. shelf.
Proceeds from the bond sale will be used to fund general capital needs for the province, Canada's largest in terms of population and economic activity.
While the Ontario issue saw good demand from a mix of institutional and retail investors, with a good amount of the bonds moving into permanent investor accounts, bonds also may have been stocked by dealers, several market sources said.
"I wouldn't exactly call it a blowout," one corporate dealer said, adding that some investors felt the deal was a little expensive, especially in light of the Treasury market's slippage. "T wouldn't doubt the deal is all,sold," but syndicate members are probably holding some bonds, the dealer added.
Leslie Thompson, director of Ontario's capital markets branch, cited the pricing of the offering before Treasuries began to slip as key to its success.
"It made the timing of our pricing look optimal," Ms. Thompson said.
More than 30% of buyers for the bonds came from the Far East, with an equal amount of demand coming from Europe. The remainder of the offering was split among investors in the United States and Canada, she said.
Unisys Corp. issued $250 million of 9.75% notes, due 1996. The noncallable notes were priced at 99.834 to yield 9.8%. Moody's rates the notes B1, while Standard & Poor's rates it B. Lehman Brothers lead-managed the offering.
Rockwell International issued $300 million of 6.75% notes, due 2002. The noncallable notes were priced at 99.797 to yield 6.778% or 41 basis points over comparable Treasuries. The notes are rated AA2 by Moody's and Aa by Standard & Poor's. UBS Securities Inc. was lead manager of the offering.
Pacific Gas and Electric issued $250 million of 8% first mortgage bonds, due 2025. The noncallable securities were priced at 98.163 or about 84 basis points over the comparable Treasuries. The issue is rated A 1 by Moody's and A by Standard & Poor's. Goldman Sachs placed the winning bid in the competitive sale.
Comerica issued $150 million of 5.95% senior bank notes, due 1997. The notes are priced at 99.963 to yield 5.96% or about 60 basis points over comparable Treasuries. The notes are rated A 1 by Moody's and A by Standard & Poor's. Kidder, Peabody & Co. was lead manager of the offering.