A split rating has taken some of the shine off PDV America's $1 billion offering -- at least for one buyer who was hoping for more yield.
The deal's ratings, split between investment grade and Junk, will likely mean it will be priced at a tighter spread to Treasuries. That means less yield for buyers.
PDV America is a wholly owned subsidiary of Petroleos de Venezuela S.A., that country's national oil company. It serves as a holding company for Petroleos de Venezuela's United States-based refining and marketing operations, according to a Moody's Investors Service release. PDV America owns 100% of Citgo Petroleum Corp.
"We're really impressed with their operations." the buyer said. But while he likes the credit, the buyer would have preferred ratings that landed it squarely in the double-B, or junk, category.
"As a split-rated credit it loses a bit of its attractiveness." he said. How appealing the offering is will come down to pricing, the source said.
Moody's yesterday assigned an investment-grade Baa3 rating to the offering. On July 9, Duff & Phelps Credit Rating Co. assigned it a BBB-minus rating, also an investment grade designation.
But on July 8, Standard & Poor's gave a non-investment grade rating of BB to PDV America's offering.
The offering, expected to arrive Tuesday, is said to consist of $250 million of senior notes due 1998, $250 million of senior notes due 2000, and $500 million of senior notes due 2003. Salomon Brothers Inc. is underwriting the offering.
Though lacking official price talk on the offering, the buyside source estimated that the 10-year portion of the offering would be likely to be priced at a spread of 175 to 200 basis points to comparable Treasuries.
If the offering had fallen firmly in the BB category, it would likely have yielded in the high 200s to 300 basis points more than comparable Treasuries, he said.
Petroleos de Venezuela will guarantee the notes along with Propernyn, a Dutch holding company for Petroleos de Venezuela's U.S. and European investments, PDV America said earlier in a release. The release announced that the company had filed a shelf registration with the Securities and Exchange Commission to offer the $1 billion of debt.
Proceeds from the offering will be used to refinance the Petroleos de Venezuela group's existing short-term debt as part of its push to convert to long-term debt, the release said.
In a release announcing its non-investment grade rating, Standard & Poor's Corp. said, "The PDV America rating reflects the application of the sovereign ceiling of the Republic of Venezuela as the owner of PDV America's ultimate parent, Petroleos de Venezuela."
In its rating release, Moody's said that since PDV America is domiciled in the United States, its rating is not limited by Venezuela's Ba1 foreign currency sovereign ceiling.
Moody's said the offering's Baa3 designation reflects "the adequate cash-flow protection provided by its directly controlled operating subsidiaries to the noteholders, by the issuance within a holding company structure that subordinates the notes to the creditors of the operating subsidiaries, and by PDV America's strong linkage to the debt-servicing capabilities of its indirect parent, [Petroleos de Venezuela]."
In its release, Duff & Phelps said, "A key element in the BBB-minus rating for PDV America is the company's legal structure, which we think successfully mitigates, but does not entirely eliminate, the country risk in the rating analysis. By issuing at the PDV America level, investors have the security of U.S.-based assets and cash flows."
In other news yesterday, Citicorp Securities Inc. said it has named Carmine Urciuoli as corporate syndicate manager for its investment grade bond business.
He replaces Jacques de Saint Phalle who left Citicorp for BT Securities in April.
Formerly the senior industrial trader on Citicorp's secondary trading desk, Urciuoli in his new position will report to Kerry Kearney, head of investment grade capital markets.
Urciuoli came to Citicorp in April 1992 following 12 years of trading experience at Lehman Brothers.
In secondary trading yesterday, spreads on high-grade bonds were unchanged to slightly tighter. General Motors Acceptance Corp. issues were among those narrowing. High-yield bonds finished unchanged.
Weyerhaeuser issued $250 million of 7.125% debentures due 2023. The noncallable debentures were priced at 98.56 to yield 7.243% or 70 basis points more than comparable Treasuries. Moody's rates the offering A2, while Standard & Poor's rates it A. Morgan Stanley & Co. lead-managed the offering.
Illinois Power issued $200 million of 7.50% first mortgage bonds due 2025. Noncallable for 10 years, the bonds were priced at 99.40 to yield 7.55% or 100 basis points more than comparable Treasuries. Moody's rates the offering Baa2, while Standard & Poor's rates it BBB-plus. Merrill Lynch & Co. lead-managed the offering.
Coca Cola Co. issued $150 million of 6% senior notes due 2003. The noncallable notes were priced at 99.809 to yield 6.026% or 32 basis points over comparable Treasuries. Moody's rates the offering Aa3. while Standard & Poor's rates it AA. Merrill Lynch lead-managed the offering.
Household Bank issued $100 million of 6.50% subordinated notes due 2003. The noncallable notes were priced at 99.497 to yield 6.569% or 88 basis points more than comparable Treasuries. Moody's rates the offering Baa1, while Standard & Poor's rates it A-minus. Lehman Brothers lead-managed the offering.
Moody's has upgraded Citicorp's long-term and short-term debt, as well as its preferred stock and commercial paper.
The rating agency raised Citicorp's long-term senior debt to Baal from Baa2 and subordinated debt to Baa2 from Baa3. The company's commercial paper rating was raised to Prime-2 from Prime-3. Preferred stock ratings were raised to baa2 from ba1 for cumulative, and to baa3 from ba2 non-cumulative. Ratings for Citicorp's subsidiary banks, including Citibank N.A., were confirmed.
Moody's placed the ratings under review for a possible upgrade on March 19.
"Moody's said that the upgrades reflect its expectations that Citicorp will be able to sustain the improving trend in its earnings (due to substantially lower loan losses and loan loss provisions), thus enabling it to continue to build capital levels," an agency release says.
Standard & Poor's has changed its ratings outlook on PaineWebber Group Inc. to positive from stable based on "management's ongoing focus on strengthening its core franchise, including increases in recurring fee revenues and improved cost controls."
The rating agency affirmed PaineWebber's BBB-plus senior unsecured debt, BBB subordinated debt, BBB-minus preferred stock, and A-2 commercial paper.
Outstanding debt totals about $1.7 billion.
"Ratings reflect the company's position as one of the nation's large, retail-oriented brokerage houses and the effective control the firm has established over asset risk and liquidity, " a Standard & Poor's release says. "These strengths are partially offset by the cyclicality of the securities industry and the difficulty of reducing expenses when securities market volumes slacken."