Bond buyers with an eye for quality got their wishes Friday as solid credits from the industrial, telephone, and finance sectors took the lure of easing interest rates.
Procter & Gamble Co., New York Telephone Co., and General Motors Acceptance Corp. found ready buyers for their notes and bonds as the bellwether Treasury long bond dipped to 8.43%. Seasoned corporate issues, meanwhile, gained 1/4 point in the secondary market.
P&G made its first trip to the debt market since agreeing to acquire certain cosmetic lines of Revlon Inc. in April. Though praised as a strategic fit, that $1.4 billion debt-financed deal left the Cincinnati-based consumer products giant with a half-notch downgrade in its AA-plus rating from Standard & Poor's Corp.
But still sporting an AA from Standard & Poor's and Aa1 from Moody's Investors Service, P&G handily sold $175 million of 10-year notes at a scant 50 basis points off the Treasury curve.
J.P. Morgan Securities Inc. priced the noncallable securities as 8.70s.
P&G has not explicitly stated how it intends to finance the Revlon deal, which will marry its household-name products like Ivory Soap with the cosmetic concern's popular Max Factor and Betrix beauty lines. But analysts expect the company to bypass its traditional lead banks Citibank and Morgan Guarantee Trust Co. and raise funds in the public market, as it did Friday.
Officials at Procter & Gamble did not return telephone calls.
Last November, buyers quickly snapped up $1 billion of long-term bonds P&G sold to fund its employee stock ownership trust. Those securities hit the Street as 9.36s at a spread of 95 basis points to the Treasury's bellwether long bond.
New York Telephone, meanwhile, became the latest phone credit to turn to bond financing, going long with $200 million of 40-year bonds.
A team led by Salomon Brothers Inc. priced the issue as 9.375s for a risk premium of 97 basis points.
Moody's rates New York Tel A2; Standard & Poor's rates it A.
While industrial and financial credits rarely venture that far out the yield curve, telephone utilities such as New York Tel often lock in debt financing for 30 years or more, thanks to the relative ability of their business. But the NYNEX Corp. until gave itself an out 10 years from now, reserving the right to call the bonds in 2001.
In the past month alone, Northern Telecom, GTE Corp., Southwest Bell, and Ameritech Capital Funding have all hit the bond market, mostly to refinance short-term and maturing debt.
Despite solid ratings, New York Tel cannot generate strong cash flow because of its high operating costs and an inflexible regulatory environment, analysts say. The company, which provides telephone service to about 9.7 million access lines New York State and Connecticut, had modest 42.6% leverage at yearend 1990, but will likely see its pretax interest coverage hover around 3.5 times over the intermediate term.
Finally, General Motors Acceptance Corp. offered $300 million of five-year notes, cutting its spread dramatically since its last five-year sale in February.
Working through a Lehman Brothers team, GMAC, one of the names that dominates the nonbank finance sector, offered the noncallable securities as 8 5/8s to yield 86 basis points over the Treasury curve.
GMAC paid 141 more than Treasuries for five-year financing in February, when it offered investors a 8 3/4% coupon.
Moody's rates the issue A1; Standard & Poor's rates it A.
Fitch Investors Service, which rates the notes slightly higher, at AA-minus, said its ratings reflects GMAC's "good asset mix and strong business position as the financing vehicle for GM cars and trucks."
Despite cyclical pressures in the auto industry, GMAC continues to post earnings of $1 billion a year and is suppoted by a stable balance sheet, Fitch said.
In the high-yield market, prices continued to inch higher, driven by a perceived scarcity of supply.
Active issues advanced about 1/4 point.