Yesterday's $1.25 billion Pacific Gas and Electric Co. issue marks the biggest debt offering ever by an investor-owned utility.
"There was strong demand accross a broad base of accounts," Kevin Kelly, a vice president at Goldman, Sachs & Co., said yesterday.
The first and refunding mortgage bond offering was launched Monday morning and was largely sold by Monday afternoon, Kelly said.
Goldman served as lead manager on the offering, with First Boston Corp. and Morgan Stanley & Co. serving as co-managers.
Pacific Gas and Electric's offering was increased from $1.05 billion, Kelly said.
Kelly said he believed the previous biggest investor-owned utility deal was a Long Island Lighting Co. offering some years ago that totaled roughly $1.1 billion.
The first tranche of the PG&E offering consisted of $400 million of 5.375% bonds due 1998. The noncallable bonds were priced at 99.635 to yield 5.459% or 45 basis points more than comparable Treasuries.
The second consisted of $400 million of 6.250% bonds due 2003. The noncallable bonds were priced at 99.892 to yield 6.264% or 55 basis points above comparable Treasuries.
The third tranche consisted of $450 million of 7.250% bonds due 2026. Noncallable for 10 years, the bonds were priced at 99.181 to yield 7.315% or 75 basts points over comparable Treasuries.
Kelly said the offering was originally scheduled to consist of three $350 million tranches. He said that even though the five-year and 33-year pieces were increased because of demand, they were priced at the tight end of the original price talk. The 10-year piece came on target, he said.
The offering achieved those levels even though the Treasury market has staged a rally of late, Kelly said.
When the Treasury market rallies, corporate spreads to Treasuries tend to widen out a bit.
While the credit enjoys wide acceptance among investors, another reason for its success was a recently announced refinancing. In June, Pacific Gas and Electric said it would be calling about $1.3 billion of its existing debt.
TVA Deal Rumored
The Tennessee Valley Authority is expected to issue a total of $2 billion debt in 50-year, 30-year, 10-year tranches as soon as possible, market sources said yesterday.
First Boston was said to be coordinating the offering.
Asked about the possibility of a deal, TVA spokesman Gil Francis said while the agency is always looking for ways to cut its interest costs, it has made no announcement concerning an issue.
The agency has trimmed interest costs by $2 1 0 million in the past four years, Francis said. He added, however, that should such a financing opportunity present itself, the agency would be in a position to move quickly.
In other news yesterday, Mesa Inc. said it would begin an exchange offer today for $600 million of its subordinated debt.
The offer's completion would enable Mesa to push back through mid-1996 up to $175 million of cash interest payments, said Jay Rosser, a Mesa spokesman.
The exchange offer expires on Aug. 18, unless Mesa elects to extend it, according to a press release from the company. The offer hinges on a minimum of 75% of the aggregate $600 million of subordinated debt being tendered and accepted.
Both Mesa and the noteholder representatives are recommending that the company's existing 12% and 13.5% subordinated noteholders tender their holdings in the exchange, the release says.
The offer's terms were negotiated with a steering committee representing a noteholders' committee, which has hired independent legal and financial advisers.
Rothschild Inc., the financial adviser, has advised Mesa that noteholder committee members collectively own about 82% of the $600 million principal amount of the subordinated notes. That figure includes steering committee members who own about 17%.
Steering committee members have said they plan to tender all their holdings in the offer, and they recommend that other noteholders do the same.
"We believe that this is a favorable transaction for the noteholders and we strongly encourage all noteholders to participate in the exchange," said Wilbur L. Ross Jr., senior managing director at Rothschild Inc.
Also yesterday, Mesa said it has executed an amendment to its bank credit facility that lengthens the final maturity from June 1994 to June 1995, among other changes. The amended facility would become effective when the exchange offer closes.
Final terms of the exchange offer are the same as previously announced.
Tendering noteholders would receive a package of new securities made up of secured and unsecured discount notes and notes convertible into equity. Holders exchanging 13.5% notes would also get cash.
The secured and unsecured notes would not bear interest through June 1995. After that, they will accrue interest at a 12.75% annual rate, payable in cash semiannually in arrears starting Dec. 31, 1995. The new notes will be senior to the existing subordinated notes.
They will be junior to permitted first lien debt. The new secured notes will be collateralized by second liens on Mesa's West Panhandle field properties and on 65% of Mesa's equity interest in its Hugoton Capital Limited Partnership subsidiary. The liens will rank second to the first liens securing the bank facility.
PaineWebber Inc. and Kidder, Peabody & Co. are dealer managers and financial advisers for the exchange offer. Morrow & Co. is the information agent.
In secondary trading yesterday, high-yield bonds ended a quiet day unchanged to slightly higher. Spreads on high-grade bonds were largely unchanged.
Chase Manhattan Corp. issued $200 million of 6.50% subordinated notes due 2005. The noncallable notes were priced at 98.86 to yield 6.639% or 90 basis points more than comparable Treasuries. Moody's Investors Service rates the offering Baa2, while Standard & Poor's Corp. rates it BBB-plus. Chase Securities Inc. was lead manager.
Duke Power issued $150 million of 7% first and refunding mortgage bonds due 2033. Noncallable for 10 years, the bonds were priced at e96.53 to yield 7.267% or 70 basis points above 30-year Treasuries. Moody's rates the offering Aa2, while Standard & Poor's rates it AA-minus. A group led by Lehman Brothers won competitive bidding to underwrite the offering.
Federal Home Loan Mortgage Corp. issued $150 million of 5.125% step-up notes due 2000 at par. Noncallable for a year, the notes were priced to yield 168 basis points over the Treasury's year bill. The coupon on the notes stays at 5.125% for the first three years, but moves up to 6.2% in years four and five and to 6.6% in years six and seven. The internal rate of return is 5.785% or 42 basis points more than seven-year Treasuries. Merrill Lynch & Co. managed the offering.
Baltimore Gas & Electric issued $125 million of 5.50% first and refunding mortgage bonds due 2000. The noncallable bonds were priced at 98.732 to yield 5.723% or 35 basis points over comparable Treassuries. Moody's rates the offering A1, while Standard & Poor's rates it A-plus. Citicorp Securities Inc. won competitive bidding to underwrite the offering.
Federal Home Loan Banks issued $91 million of 4.44% notes due 1996. Noncallable for a year, the notes were priced to yield 11 basis points over comparable Treasuries. Donaldson, Lufkin & Jenrette Securities Corp. was sole manager.
Federal Home Loan Banks issued $35 million of 5.80% medium-term notes due 2000 at par. Noncallable for three years, the notes were priced to yield 42 basis points more than comparable Treasuries. PaineWebber Inc. managed the offering.
