Salomon Brothers Inc.'s Treasury market bidding woes spread to the debt market yesterday, where Moody's Investors Service placed the firm's $7 billion in rated securities on negative review.
The firm's A2 senior debt rating and its Prime-1 commercial paper rating may be affected.
The review, Moody's said, was prompted by "concerns regarding the possible legal, financial, and business consequences arising from recent revelations related to Salomon's U.S. Treasury Securities Business."
The government has started criminal and civil investigations of the investment firm based on evidence that it violated bidding rules in several U.S. Treasury auctions.
Bond traders said there was little Salomon paper out for the bid in the secondary market, and bond prices had not fluctuated, although the firm's stock plunged 15%, or 4 3/4 point, on the day.
In secondary trading, junk bonds rose 1/8 to 3/8 point, while investment grade bonds climbed 1/4 to 3/8 point. The price gains, traders said, are prompted by good technicals and yield-hungry investors.
"Treasury rates are very low, and we're seeing a lot of new issuance, which means more bonds in the secondary," a trader said. "A lot of people are jumping on the bandwagon for undervalued bonds."
Around $1 billion in new securities flooded the primary sector yesterday as issuers continue to take advantage of low interest rates.
Treasury yields have plummeted during the last several sessions, and the debt markets have taken on considerable new supply, some from issuers long absent from the market.
Salomon Brothers as senior manager priced $250 million of noncallable debentures for Capital Cities/ABC, its first new issue in months.
The offering is priced as 8.750s to yield 8.83% in 2015, 75 basis points over comparable Treasuries.
The issue is rated A1 by Moody's and A-plus by Standard & Poor's Corp.
Ingersoll-Rand also ventured into the market after a long hiatus, with a $125 million issue of noncallable debentures, priced by Salomon as 9s at par in 2021, 92 basis points over comparable Treasuries.
The debentures were rated A2 by Moody's and A by Standard & Poor's.
First Boston Corp. priced $250 million of noncallable notes for Tenneco Credit as 9 5/8s to yield 9.693% in 2001, 190 basis points over comparable Treasuries.
The issue is rated Baa2 by Moody's and triple-B by Standard & Poor's.
First Boston also priced $210 million of noncallable senior subordinated notes for American Medical International.
The offering included a 2001 maturity priceds as 13.50s at par, 569 basis points above comparable Treasuries, one of the highesty yielding junk bonds to ever hit the market, traders said.
The notes are rated B2 by Moody's and B-minus by Standard & Poor's.
Goldman, sachs & Co. as senior manager priced $200 million of noncallable notes for Proctor & Gamble Co. as 7.10s at par in 1994, 37.5 basis points over the comparable Treasury coupon.
The issue is rated Aal by Moody's and AA by Standard & Poor's.
In ratings news, Moody's Investors Service said it placed the long-term ratings of Leeds Permanent Building Society under review for possible downgrade.
About $2.5 billion of debt may be affected.
Moody's said the action reflects some degree of concern regarding the possible effect of higher loan loss provisions on the earnings stream of Leeds Permanent.
Leeds Permanent's senior debt is currently rated Aa3 and its subordinated debt is rated A2.
Moody's added that the Prime-1 rating for Leeds Permanent's commercial paper is not under review.
Moody's said it also lowered First Union Corp.'s debt and commercial paper ratings as well as the long-term certificate of deposit ratings for its subsidiary banks. The ratings were placed under review July 15, 1991.
About $1.2 billion of securities is affected.
First Union's rating changes reflect the likely continuing impact of depressed commercial real estate market conditions, especially in the important Florida market and in other markets outside of North Carolina where the corporate banking group has been active.