The junk bond rally powered by Owens-Illinois Inc.'s recapitalization announcement earlier this week encoutered some selling off yesterday, but buyers also bid up some names, including Uniroyal Chemical Co.
"Uniroyal Chemical bonds are just through the moon," one trader said.
The company's 14 1/4s bumped up to 98 1/2 from about 96 yesterday, while its zeros climbed eight ro nine points over the past four days, to 55, another trader said.
"I don't know. It's a good credit, and it's undervalued," he said when asked to explain the rise.
Resolution Trust Corp. sold off a hefty amount of Uniroyal Chemical's bonds earlier this year at bargain prices, the first trader added.
The company sold about $27 million of the 13 1/2s, $25 million of the 14 1/4s and $20 million of the zeros. The RTC sold the zeros at prices ranging from 21 to 33, a bargain compared with yesterday's 55 price.
As for Owens-Illinois, its bonds jumped seven or eight points from where they were trading earlier in the week, traders said.
Owen's recapitalization plan will siphon close to $1 billion of high-coupon debt from the approximately $200 billion junk bond market, said Paul Owens, an investment manager at Berkeley Capital.
Owen's-Illinois late Tuesday annoucned it had filed with the Securities and Exchange Commission to make an initial public offering of $60 million shares of common stock at $13 to $16 a share. It simultaneously said it would offer $1 billion of senior debentures due 2003.
It filed the debentures offering with the Securities and Exchange Commission yesterday.
The glass and plastic packaging manufacturer named Merrill Lynch & Co., BT Securities Corp., and Goldman, Sachs & Co. to undewrite the debentures offering.
Privately held since 1987, the company said it will apply forf listing on the New York Stock Exchange. Owens-Illinois plans to use proceeds from the debentures sale to retire senior reset notes, which are junk bonds. It made tender offers on Wednesday.
The stock deal should bring between $780 million and $960 million to the company.
Owens-Illinois became a private company in March 1987 when Kohlberg Kravis Roberts & Co. acquired it in a $3.6 billion leveraged buyout.
Owens is one of a number of companies pulling high-coupon debt from the market. But as supply exits, some new supply is on the way, a source involved in underwriting a $100 million deal by Inland Steel Co., said yesterday.
"I think the cue is building," he said. Those upcoming deals are mostly of the BB senior refinancing variety, the source said.
Inland Steel filed with the Securities and Exchange Commission yesterday to issue $100 million of first mortgage bonds with a seven-year bullet maturity through Goldman Sachs and First Boston Corp., he said.
Martin S. Fridson, head of highyield research at Merill Lynch, said high-coupon debt will continue to depart the junk market as long as the equity market remains strong. During the 1980s, many longtime investment-grade companies fearful of hostile takeovers staged leveraged buyouts, loading up with debt, he said.
"I think that in their heart of hearts those companies never [espoused] the high-yield gospel," Mr. Fridson said.
With corporate raiders now "defanged" by lack of financing because of the junk bond market's fall, those companies can breathe easier. Many are seeking to reduce debt, he said.
The investment-grade market followed Treasuries' decline yesterday, dropping about 1 1/2 at the long end. Several new issues also came to market.
ITT Hartford Group issued $200 million of 8.2% notes due 1988. The noncallable notes were priced at 99.969 to yield 8.205%, or 97 basis points over comparable Treasuries. Moody's rates the notes A1, while Standard & Poor's rates them AA-minus. Goldman Sachs lead managed the offering. First Boston and Merrill Lynch served as co-managers.
Service Corporation International has issued $150 million of 6.5% convertible subordinated debentures due 2001. The debentures, noncallable for four years, were priced at par. The conversion price is $31.11. Merrill Lynch served as lead manager with J.P. Morgan Securities Corp. as co-manager the offering. Moody's rates the notes Baal, while Standard & Poor's rates them BBB-plus.
The Federal National Mortgage Association issued $150 million of 6.295% floating-rate notes. The notes, due 1996, float monthly at 55 basis points under the cost-of-funds index and pay quarterly. Merrill Lynch managed the offering, which was increased from $100 million earlier.
Comcast Corp. issued $125 million of 10.250% senior subordinated debentures due 2001. The noncallable debentures were priced at par. Moody's rates them B1, while Standard & Poor's assigns a B. Goldman Sachs was lead manager for the offering.
On Wednesday, Societe Nationale Elf Aquitaine issued $300 million of 8% notes due 2001 Wednesday. The noncallable notes were priced at 99.658 to yield 8.05%, or 60 basis points over comparable Treasuries. Goldman Sachs managed the offering. Moody's rated the deal Aa3, while Standard & Poor's assigned a AA.
In yesterday's rating actions, Standard & Poor's lowered Spreckels Industries Inc.'s rating on approximately $55 million of subordinated debt to CCC-plus from B-minus. The implied senior rating is B, and the ratings outlook remains negative.
The move by Standard & Poor's came after Spreckles announced that it had delayed filings its form 10-K annual report for its fiscal year ending June 30 with the Securities and Exchange Commission, pending completion of negotiations with its bank group.