Southdown Expects Verbal Commitments To $100 Million Private Offering by Friday
Southdown Inc. expects to receive verbal commitments from investors for its $100 million private placement offering by week's end, a company source said yesterday.
The company is offering the deal as a private placement, but will register it later with the Securities and Exchange Commission. The offering is being sold under Rule 144A, which facilitates secondary trading of unregistered securities.
Pricing being discussed for the 10-year senior subordinated notes is 13 1/2% to 14% plus warrants to purchase 3% to 5% of the cement company's equity. The company source declined to comment on the pricing.
Southdown last week completed a 13-city, coast-to-coast roadshow that drew healthy attendance, the source said. Kidder, Peabody & Co. Inc. is serving as agent.
Southdown must file a registration statement with the Securities and Exchange Commission within 90 days of the deal's closing, she said.
Mutual funds are expected to purchase the majority of the notes because regulatory and other constraints have all but driven insurance companies from the high-yield market.
Moody's Investor's Service rates the notes B1, while Standard & Poor's Corp. rates them B. The deal is expected to receive a 4 rating from the National Association of Insurance Commissioners.
Reduced demand for cement coupled with an aggressive spending plan have hurt Houston, Tex.-based Southdown, one analyst said. But the analyst sees demand for cement improving within the next year, and prices improving dramatically within the next two to three years.
Meanwhile, in the public highyield market, buyers flocked to Varity Corp.'s $150 million offering yesterday after a lower-than-expected Moody's rating prompted the company to increase yield and call protection.
"It was well oversubscribed," one source familiar with the transaction said.
Demand for the 11.375% senior notes due 1998 exceeded the offering by approximately one-and-a-half times, but it was not increased, he said. The notes were priced at 98.26 to yield 11.737%.
Earlier talk had the notes yielding in the 11.50% range, though some analysts thought the deal unattractive at less than 12%.
But on Sept. 27, the same day Varity completed its roadshow, Moody's assigned a B1 rating, a lower designation than the BB rating Standard & Poor's Corp. assigned earlier.
Though the Varity offering received fairly good interest prior to the Moody's announcement, the company decided to sweeten the yield and increase call protection from three to five years, the source said. Dillon Read & Co. managed the offering.
The high-yield and high-grade markets were firm overall yesterday, traders said.
In the investment-grade market yesterday, Iowa-Illinois Gas & Electric Co. issued $40 million of first mortgage bonds due 2001. Noncallable for five years, the bonds were priced at 99.862% to yield 8.17% or 72 basis points over comparable Treasuries. Moody's rates the bonds Aa2, while Standard & Poor's assigns an AA. Smith Barney, Harris Upham & Co. managed the offering.
Alex. Brown & Sons Inc. hit the private placement market Monday with a $25 million convertible debentures deal for a health care company. Further details on the investment grade offering were unavailable yesterday afternoon.
In other news, Federal Farm Credit Banks Funding Corp. yesterday announced plans to redeem three issues of callable Federal Farm Credit System Banks Consolidated Systemwide bonds, totaling $375 million.
Federal Farm plants to redeem its $150 million of 8.70% Optional Principal Redemption bonds and $125 million of 8.61% bonds, both due Nov. 1, 1995. It will also redeem $100 million of 8.27% bonds due Nov. 1, 1993. All three issues will be wholly redeemed at par on November 1.
Also yesterday, Moody's released a special report that said this year's events will have a significant effect on the life insurance industry's future.
"The events of 1991, particularly the seizure of Mutual Benefit Life, will continue to have profound consequences for the U.S. life insurance industry, resulting in greater risks particularly for insurers with large problem asset concentrations and significant dependence on investment-oriented or confidence sensitive liabilities."
Moody's forecasts further downgrades for some companies, and a wider disparity between stronger and weaker companies as the industry continues to adjust to a new business and regulatory environment.