Pending nuptials for Viacom Inc. and Paramount Communications Inc. apparently left some Paramount bondholders with cold feet yesterday.

Traders reported a widening in spreads on Paramount issues of 10 to 15 basis points since Friday, and about 25 basis points since earlier last week.

However, such spreads to comparable Treasury issues preceded a Paramount ratings affirmation by Standard & Poor's Corp., and little could be learned late yesterday from traders as to how that move affected the bonds.

One trader, who said Paramount's 7 1/2% debt of 2023 had widened about 12 basis points since Friday, attributed the widening to the possibility of a downgrade from Moody's Investors Service, uncertainty concerning a merger with a company rated in the BB range, and fear that a competing bid for Paramount may emerge.

While the trader said it is unlikely that a challenger will come to the fore, he added:

"Fears don't have to be realistic."

Viacom and Paramount announced a definitive merger agreement on Sunday to form a global entertainment and publishing enterprise called Paramount Viacom International Inc.

Combined annual revenues would total more than $6 billion, a joint release from the companies says.

The plan would give Paramount stockholders a total of about $69.14 per share in cash and stock, the release says.

Viacom would carry out the acquisition by exchanging each outstanding Paramount share for 0.1 of a share of Viacom Class A common stock, 0.9 of a share of Viacom Class B common stock, and $9.10 in cash, the release says. On that basis, the deal is valued at $8.2 billion.

Moody's reacted to the announcement by placing Paramount Communications' debt under review for a possible downgrade and Viacom's under review for a possible upgrade.

The rating agency's action affects roughly $1.6 billion of debt.

"The review will focus on the proposed mode of financing of the cash portion of the proposed merger and its impact on the debt protection measurements of the combined entity, the potential operational risks and benefits, and the strategic direction of the new company," a Moody's release says.

Ratings being reviewed for a possible downgrade are: Paramount Communications A2 senior notes and debentures; A3 subordinated debentures; and Prime 1 commercial paper rating.

Ratings being reviewed for a possible upgrade are: Viacom International's (P) Bal/(P) Ba3 shelf registration; Ba3 senior subordinated notes and convertible subordinated debentures; and the "not prime" commercial paper rating.

Moody's also acknowledged that Viacom could face competition for Paramount.

"Although it appears unlikely, a competitive bid for Paramount is possible." the rating agency's release says. "In such a case, the impact on Paramount's debt ratings could be more severe than any adjustment that could occur from the current proposal."

For its part, Standard & Poor's put Viacom International's BB-plus subordinated debt and A-3 commercial paper on CreditWatch for a possible upgrade. Viacom's implied senior rating is BBB-minus.

Standard & Poor's affirmed Paramount's A senior debt and A-1 commercial paper.

The action affects about $3.4 billion of debt.

"The new business combination will have sales over $6 billion and operations in cable, film and television production, publishing. broadcasting, and theme parks," Standard & Poor's said in its release. "Many of the businesses on each of the firms complement each other, and S&P views the business profile of the surviving company as more favorable."

In secondary trading, spreads on high-grade bonds ended a slow day unchanged. Junk bonds also ended unchanged, though Viacom's debt ended four to five points higher in thin trade.


Pacific Gas and Electric offered a two-part issue totaling $700 million. The first tranche consisted of $300 million of 5.875% first and refunding mortgage bonds due 2005. The noncallable bonds were priced at 99.871 to yield 5.89% or 63 basis points more than 10-year Treasures.

The second piece consisted of $400 million of 6.750% bonds due 2023. Noncallable for 10 years, the bonds were priced at 98.732 to yield 83 basis points more than the old 30-year Treasury bond. Moody's rates the offering Al, while Standard & Poor's rates it A. First Boston Corp. served as lead manager on the offering.

Associates Corp. of North America reportedly issued $300 million of 5.25% due 2000. The noncallable notes were priced at 99.40 to yield 5.36% or 52 basis points more than comparable Treasuries. Salomon Brothers Inc. was lead manager.

Heller Financial Inc. issued $200 million of 5.625% notes due 2000. The noncallable notes were priced at 99.875 to yield 5.648% or 80 basis points more than seven-year Treasuries. Moody's rates the offering A2, while Standard & Poor's rates it A. Goldman, Sachs & Co. served as lead-manager on the offering.

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