Details of Marriott Corp.'s proposed exchange offer for $1.525 billion of its public debt stirred little movement in those bonds yesterday, high-yield traders said.
"This is part of the settlement reached with [some of the] bondholders who were litigating over their plans to split up," Robert C. Nelson, an analyst at Standard & Poor's Corp., said.
Last October, Marriott raised the ire of bondholders by announcing plans to split into two separate companies, leaving one with virtually all of the debt. The proposed split would be completed through a special dividend transaction.
According to Marriott spokesman Robert T. Souers, the company in March reached agreement concerning an exchange offer with four institutional bondholders for about $400 million of its debt.
The offer was registered with the Securities and Exchange Commission in May and became effective recently, Souers said.
"Our intention was always to do the best we could for all our stakeholders," he said.
While not all bondholders have agreed to the exchange offer, Souers said the institutions that reached the agreement are financially sophisticated and had the best interests of bondholders at heart.
Souers emphasized, however, that Marriott intends to carry out its split whether or not the exchange goes through.
But Lawrence Kill, an attorney with the law firm of Anderson Kill Olick & Oshinsky, which represents some other bondholders in a suit headed by PPM America Inc., said he opposes the exchange offer but that it has no effect on the PPM suit.
"We intend to continue to prosecute it strenuously," Kill said. The PPM plaintiffs allege that Marriott was already contemplating a split, but failed to disclose that information when it sold them their bonds.
Carol Palmer, a vice president at Duff & Phelps/MCM Investment Research Co., said of the exchange offer, "It's not in their best interest not to exchange them."
Duff & Phelps rates the company's debt B, but has it on its watch list for a possible upgrade.
Despite its speculative rating, Palmer believes Host Marriott, the debt-laden unit, will be a viable company following the split.
"It's not a bankruptcy vehicle in my opinion," she said.
For its part, Standard & Poor's Corp. in May said it has assigned a BB-minus rating to bonds offered in the exchange. Existing bonds that are not exchanged will be rated B, as they are now.
The exchanged debt is secured, and the unexchanged debt would be structurally subordinate to the secured debt, Nelson said.
According to a Marriott release, the offer, which hinges on certain conditions, would give exchanging bondholders a combination of new notes of Host Marriott Hospitality Inc., an indirect wholly owned subsidiary of Marriott Corp.; Marriott Corp. common stock; and, in some cases,cash.
Host Marriott Hospitality will own most of the operating assets of Host Marriott Corp., as Marriott Corp. will be known following the special dividend transaction.
Marriott shareholders will consider the special dividend transaction the company's July 23 annual meeting. Marriott expects to complete the transaction by late summer he release says.
For each $1,000 principal amount of the company's series B, C, D, E, K, L, and M senior notes and Marriott's debentures, holders will get $950.74 principal amount of notes of Host Marriott Hospitality and $49.26 market value of Marriott Corp. common stock.
For each $1,000 principal amount of Marriott Corp.'s series F and I senior notes, holders will get $456.35 principal amount of new Host Marriott Hospitality notes, $520 in cash, and $23.65 market value of Marriott Corp. common stock, the release says.
The coupon and maturity for each new series will be 100 basis points higher and four years longer, respectively, than the series of existing notes for which it is being exchanged. One exception, however, will be the series L notes, which will have maturities shortened by five years.
Asked why that series will have a shorter maturity, Souers said it was just the way the deal was structured.
The new notes will have a variety of new covenants, and will be secured and guaranteed by the stock of Host Marriott Hospitality's principal operating subsidiaries. Host Marriott Hospitality's parent, HMH Holdings Inc., will also guarantee the new bonds and be the borrower under a $630 million line of credit that Marriott International will provide.
Also under the exchange, Marriott is seeking consents for some proposed changes to the indenture under which the existing notes were issued.
It seeks "the waiver of any claims, rights, or defaults under the indenture, and release and discharge of all legal or equitable claims of exchanging bondholders relating to that special dividend transaction," the release says.
Among other things, the exchange offer's consummation hinges on the tendering of at least 51% of the principal amount of each, and at least 85% of the principal amount of all series of existing notes offered for the exchange. It also hinges on completion of the special dividend transaction.
The exchange offer and consent solicitation will expire Aug. 17 unless Marriott decides to extend the deadline.
The exchange offer and special dividend transaction are expected to occur at the same time.
Dealer managers will be BT Securities Corp. and S.G. Warburg & Co. Bankers Trust Co. will act as exchange agent, and Mackenzie Partners will act as information agent.
In secondary trading yesterday, high-yield bonds ended unchanged. Spreads on high-grade bonds were also unchanged.
"Quiet wasn't the word for it," one high-grade trader said. "Accounts have so much money, but they don't know what to buy because everything's so rich."
Commercial Credit Co. issued $200 million of 5.75% senior notes due 2000. The noncallable notes were priced at 99.516 to yield 5.836% or 53 basis points more than comparable Treasuries. Moody's Investors Service rates the offering A2, while Standard & Poor's and Duff & Phelps Credit Rating Co. rate it A. Salomon Brothers Inc. lead-managed the offering.
Federal Home Loan Banks reportedly issued $165 million of 3.980% debentures due 1995 at par. The noncallable debentures were priced to yield one basis point more than comparable Treasuries. Morgan Stanley & Co. managed the offering.
Federal Home Loan Mortgage Corp. issued $150 million of 4.05% step-up notes due 1997 at par. The notes are noncallable for a year, after which the coupon steps up to 5.20%. Merrill Lynch & Co. managed the offering.
Society National Bank issued $135 million of 3.5% senior notes due 2000. The noncallable notes were priced initially at 99.951 to yield 3.55% or 10 basis points above comparable Treasuries. Moody's rates the offering A1, while Standard & Poor's rates it A. Duff & Phelps rates them A-plus. Kidder, Peabody & Co. sole-managed the offering.
Alco Health Distribution Corp. issued $126.5 milion of 11.25% senior debentures due 2005 at par. The debentures are callable after five years at 105.62, 102.81 and par.
The debentures are pay-in-kind securities until July 15, 1998. If the company completes an initial public offering in the first three years, it can call up to 50% of the issue at 110. Moody's rates the offering B3, while Standard & Poor's rates it B-minus. Donaldson, Lufkin & Jenrette Securities Corp. was lead manager. Moody's rates the debentures B3, while Standard & Poor's rates them B-minus.
Federal Home Loan Banks issued $108 million of 4.34% notes due 1996 at par. The noncallable notes were priced to yield six basis points more than comparable Treasuries. Dean Witter Reynolds Inc. solemanaged the offering.
Federal Home Loan Banks issued $100 million of 4.55% incremental step-up notes due 2000. The coupon steps up to 5% in the second and third years, 6.20% in the fourth and fifth years, and 6.60% in the sixth and seventh years. The issue has an internal rate of return of 5.65%. Bear, Stearns & Co. solemanaged the offering.
Federal National Mortgage Association issued $100 million of 6.320% medium-term notes due 2003 at par. Noncallable for a year, the notes were priced to yield 62 basis points more than comparable Treasuries. Salomon Brothers solemanaged the offering.
Federal Home Loan Banks reportedly issued $85.2 billion of 5.010% debentures due 1998 at par. The notes were priced to yield 4 basis points over comparable Treasuries. Morgan Stanley & Co. managed the offering.
La Petite Holdings issued $85 million of 9.625% senior secured notes due 2001 at par. A 50% sinking fund begins in 2000. Moody's rates the offering B3, while Standard & Poor's rates it B. BT Securities sole-managed the offering.