Morgan Hopes to Score with Yankee Bonds in '95

Targeting what it believes is a growing business, J.P. Morgan & Co. is bringing so-called Yankee bonds to the U.S. market in behalf of foreign corporations.

In an unusually long-term debt issue, J.P. Morgan Securities Inc. last week underwrote and distributed $400 million in 30-year bonds for Legrand, a French manufacturer of low-voltage electrical fittings and accessories.

The deal is the first such bond underwritten by Morgan so far this year, but bank executives say more issues are in the works.

"The outlook is good," said Ton Gardeniers, head of the international issuer group at J.P. Morgan Securities, the bank's investment banking unit. "It's one of the few sectors of the corporate bond market in the United States that many believe will grow in 1995."

The increased interest in underwriting issues on behalf of foreign borrowers comes as U.S. corporations, which refinanced large amounts of debt when interest rates were low, have slowed down their borrowings on the U.S. bond market.

Although foreign companies have traditionally turned to their own domestic market or the Euromarket for their borrowings, Mr. Gardeniers said the U.S. market is attractive because it "provides them with entirely new nonbank investors and an opportunity to lock in longer maturities" easily.

Bonds issued here by foreign corporations must be registered with the Securities and Exchange Commission and meet U.S. reporting requirements, although some leeway is allowed for different accounting practices abroad.

Morgan is one of four money-center banks active in the Yankee bond market. The others are Bankers Trust Corp., Chase Manhattan Corp., and Chemical Banking Corp. Competitors also include U.S. investment banks and foreign banks, such as Union Bank of Switzerland, Deutsche Bank, and France's Banque Paribas.

However, Chase, Bankers Trust and Chemical have been far slower to develop their activities than Morgan. According to Securities Data Co., Chase underwrote two issues last year for a total of $250 million, while Bankers Trust did two issues for $274 million, and Chemical underwrote two issues worth $185 million. That compares with the more than $3 billion handled by Morgan in 1994.

"We do some (Yankee bond business), but it's not a business we've focused on," said Tom Parisi, a Bankers Trust spokesman. "It's pretty competitive, and we kind of look to do business in areas where we have a competitive advantage."

Cindy Powell, a managing director at Chase Securities, Inc., said the bank is working to get a "couple" of issuances. "What we're trying to build is a seamless operation that includes emerging markets, Euromarkets, equity issues, and other items."

Morgan has been steadily building up its share of the market, although different rankings give the bank a different market share, according to what is defined as a Yankee bond.

Data published by International Financing Review ranked Morgan last year as the third biggest underwriter after Merrill Lynch & Co. and Goldman Sachs & Co.

Morgan had seven issues worth $1.9 billion, according to that ranking.

Among the major issues Morgan managed last year was a $400 million, 10- year issue for Midland Bank PC.

Morgan executives said that foreign banks have been big users of the Yankee bond market. They predicted that trend will continue, especially among Scandinavian and Asian banks.

John Massad, a vice president at Morgan's fixed-income syndicate desk, said he also expects more long-term issues as a result of increased interest among foreign borrowers and U.S. investors.

"We're seeing far fewer (American corporate) 30-year issues this year and the U.S. government is issuing far less long-term debt " Mr. Massad said. He estimated that fewer than six such bond issues have been brought to market since the start of the year.

That, he added, means that U.S. investors are more receptive to buying bonds issued by foreign corporations because there's "less opportunity for investors in long-term debt, such as pension funds and insurance companies with long-term liabilities, to buy from those (American) sources."

The Legrand issue, rated A2 by Moody's Investors Service and single-A by Standard & Poor's Corp., marks one of the largest and longest-dated issues of Yankee bonds.

Legrand, a company based in Limoges with around $2 billion of annual sales, will pay 8.58% for its borrowings, or 95 basis points over equivalent U.S. government treasury debt. Proceeds from the sale will be used for general corporate purposes and to refinance long-term debt.

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