M.A. Hanna Co. will use part of the proceeds from two upcoming deals totaling $175 million to defease a bond issue maturing in 1994, according to chief financial officer Ronald G. Fountain.
Although the 12 1/2% senior subordinated notes totaling $109 million are due in 1994 are callable in October 1992, the company likes the current interest rate climate, he said.
"We don't know what the market will be like in October 1992," Mr. Fountain said.
The company has filed with the Securities and Exchange Commission to issue $75 million of senior unsecured notes due 1988 and $100 million of senior unsecured notes maturing 2001. Salomon Brothers Inc. and Lazard Freres & Co. are co-managing the deals.
The defeasance allows Hanna to remove the 1994 debt from its balance sheet early, Jerry Herman, a Kemper Securities analyst explained. "They can't technically retire it yet," he said.
Through defesance, M.A. Hanna sets aside a chunk of money and invests it to generate sufficient funds to satisfy its debt obligation, Mr. Herman said. He estimated that the company would need to set aside approximately $120 million to cover the cost of the $109 million 1994 issue.
Proceeds from the two upcoming deals will also be used in connection with M.A. Hanna's repurchase of 29% of its common stock, previously held by Brascan Ltd. The purchase, which took place last month, encompassed 7,736 shares at $26.12. Hanna purchased the stock using $150 million of exchangeable preferred stock, $52 million in cash, and $2.75 million warrants to purchase Hanna common stock at $26.12 for the next seven years. M.A. Hanna plans to exchange the preferred stock for $150 million of notes, Mr. Herman said, but when that exchange occurs will depend on the timing of the two planned issues.
Standard & Poor's Corp. rates the $109 million of senior subordinated notes BB-plus and assigns an implied senior rating of BBB-minus. Moody's Investors Service Inc. rates the company's senior subordinated notes due 1994 Baa3.
The investment grade corporate bond market was unchanged to up an 1/8, while the junk bond market was firm and up 1/4 to 1/2 yesterday.
Standard & Poor's upgraded Sysco Corp.'s senior debt to A from A-minus, its subordinated debt to A-minus from BBB-plus and its commercial paper to A-1 from A-2. The actions affect approximately $449.7 million of debt.
Heller Financial's $225 million of floating rate noncallable notes due Sept. 3, 1992 received an A rating from Duff & Phelps Inc. The interest rate on the notes will be reset daily and floats at 235 basis points under the prime rate. The rating was the same one assigned to Heller's outstanding senior debt. It primarily reflects Heller's acquisition by Fuji Bank Ltd.
Duff & Phelps assigned an A rating to Commercial Credit Company's $100 million issue of 8% senior notes due September 1996. The notes are being offered to yield 8.05% at part and are noncallable prior to maturity. The rating reflects Commercial Credit's improved operating performance since new management took over in 1986.
The agency reaffirmed the claims paying ability rating of Southwestern Life Insurance Company SLIC at A-plus.
BDS Securities Formed
In other news, members of R.D. Smith & Co. have formed a new firm called BDS Securities Corporation, according to a release issued by the new firm.
BDS Securities' formation caps a process begun when R.D. Smith founder Randall Smith decided to concentrate on his personal investment portfolio and other pursuits. BDS will employ 40 people who comprised the core of R.D. Smith's sales, trading, research and administrative staffs.
"While BDS is a distinctive and new entity, it is our goal to carry on the role and tradition of R.D. Smith as the leading brokerage firm specializing in securities and other obligations of bankrupt and troubled companies. We intend to excel in the area of client service in this complex and growing sector of the investment market," John W. Adams, chief executive officer of BDS said in the release.