Cable television bonds yesterday seemed unaffected by a federal district court ruling allowing a telephone company to offer cable programming through its own lines.
But analysts warned that the cable companies could come under increased competitive pressures if the ruling is upheld.
"If it is upheld, the cable companies would have a real competitor on their hands for the first time." said Nicholas D. Riccio, a credit analyst at Standard & Poor's.
The ruling, issued on Tuesday by a federal court in Virginia, overturned a section of the Cable Act of 1984 that prohibits telephone companies from offering cable services. Cable operators will probably appeal, and a resolution of the issue appears years away.
That gives the cable companies time to prepare for the new competition. Even if the ruling is upheld, the telephone companies would have to spend significant sums to build new lines and equipment for delivery of cable services, Riccio observed.
Some analysts shrugged off the ruling. They said that given the rapid pace of technological change in the communications arena, cable companies were bound to face more competition eventually.
"I don't think this changes the landscape that we all saw forming a long time ago," said Oren Cohen, a high-yield analyst at Salomon Brothers Inc. "Technology and the marketplace have gotten way ahead of the regulations. One way or another, it had to change."
Traders said the ruling had no discernible impact on bond prices yesterday. Time Warner's zero coupon bonds due in 2002 were quoted at 88.5, unchanged from earlier in the week. Cablevision Industries' 10 3/4% notes due in 2002 were quoted at 103.5, down 1/4 from yesterday.
As news of the ruling spreads over the next few weeks, however, the bonds could drop, analysts and traders said.
"A lot of people are confused. There could still be a sell-off, because I think most people's gut reaction [to the ruling] would be negative," one cable bond analysts said. "But eventually, I think the market will realize that this opens up new opportunities."
Analysts said they expected the ruling would encourage cable operators to enter more joint ventures with telephone companies or merge outright with the new competitors.
Les Levi, a cable analyst at Merrill Lynch & Co., said the ruling could prompt the telephone companies to enter into alliances with some of the more highly leveraged cable operators.
"It makes more economic sense for the regional Bell telephone companies to team rather than overbuild," Levi said.
That could help boost the credit ratings of some of the smaller players, since the telephone companies are generally far less leveraged and carry higher credit ratings.
For example, when American Telephone & Telegraph Co. announced its intention to buy McCaw Cellular Communications Co. for $12.6 billion last week, the rating agencies put the debt of both companies on review. The agencies said that AT&T's debt could be downgraded, while McCaw's could be upgraded.
In secondary trading yesterday, spreads on investment-grade bonds narrowed slightly. Below investment-grade bonds were up 1/8 to 1/4 in quiet trading,
Westinghouse Electric offered a two-part, $600 million issue managed by Lehman Brothers. The first part consisted of $275 million of 6 7/8% notes due in 2003. The noncallable notes were priced at 99.821 to yield 6.90%, or 135 basis points more than comparable Treasuries.
The second part consisted of $325 million of 7 7/8% debentures due in 2023. The debentures were priced at 99.828 to yield 7.89%, a spread to Treasuries of 155 basis points.
Union Pacific Corp. issued $150 million of 6% notes due in 2003. The notes, noncallable for seven years, were priced at 99.259 to yield 6.10%, or 58 basis points more than comparable Treasuries. The deal was managed by First Boston Corp.
The Federal Farm Credit Bank issued $125 million of 3 7/8% medium-term notes due in 1995. The noncallable notes were priced at par to yield 3.875%. Goldman Sachs managed the deal.
Brunswick Corp. issued $125 million of 7 3/8% debentures due in 2023. The noncallable debentures were priced at 99.28 to yield 7.435%, or 110 basis points more than the 7 1/8% 30-year Treasury bond due in February 2023. Merrill Lynch & Co. managed the offering.
Southern California Edison Co. issued competitively $125 million of 5 7/8% first and refunding mortgage bonds due in 2004. The noncallable bonds were priced at 99.726 to yield 5.909%, a spread of 40 basis points to comparable Treasuries. First Boston submitted the winning bid.
Bethlehem Steel Corp. issued $105 million of 10 3/8% senior notes due in 2003. The notes were priced at par to yield 10.375%. Salomon Brothers managed the deal. The notes are rated B-plus by Standard & Poor's.
Cort Furniture Rental Corp. sold $100 million of 12% senior notes due in 2000. Each note included 33 equity warrants. The notes were priced at par to yield 12% by Donaldson, Lufkin & Jenrette Securities. The deal is rated B2 by Moody's Investors service and B-minus by Standard & Poor's.
New Orleans Public Service Inc. issued $30 million of 7.55% general and refunding mortgage bonds due in 2023. The bonds, noncallable for five years, were priced at 99.875 to yield 7.561 %, or 122.5 basis points more than the February 2023 Treasury bond. Kidder Peabody managed the issue.