Syndicate desks rushed $1 billion of new corporate paper through the financing window Friday as the Treasury long bond dipped to its lowest yield in more than two months.
With the U.S. government's bellwether issue hovering near 8.24% -- the lowest level since May 30 -- five corporate borrowers locked in financing ahead of this week's $38 billion Treasury refunding.
Industrial credits like Tenneco Inc. and Shell Oil Co. led the drive, which scattered notes and bonds across the yield curve from three to 30 years.
The deals came amid full-point gains among long-term high grades.
Topping the list, Houston-based Tenneco, a diversified gas and chemical concern with near speculative-grade ratings, raised $500 million with seven-year notes.
A Morgan Stanley & Co. team priced the noncallable securities with a 10% coupon to yield 210 basis points over the Treasury curve.
Yield-hungry buyers flocked to the double-digit coupon and healthy spread despite Tenneco's highly cyclical business, prompting underwriters to up the issue from an originally planned $300 million.
Moody's Investors Service rates Tenneco Baa2; Standard & Poor's Corp. rates it BBB.
"They're subject to recessionary pressures, and their earnings are definitely showing that," Carol Verschelle, assistant vice president at Moody's Investors Service, said of Tenneco, "It's very cyclical."
Like Columbia Gas Systems Inc., a Delaware-based natural gas utility that filed for bankruptcy last week, Tenneco has exporure to uneconomical take-or-pay contracts with its gas suppliers. Columbia, an investment-grade credit when it blind-sided Wall Street with news of massive losses in June, now carries D ratings from the major agencies.
But while Tenneco does have similar contracts at its Tennessee Gas Pipeline subsidiary, "we feel it's a manageable situation at this time," Ms. Verschelle said.
"Tenneco was a lot tighter [in spread] a few months ago," said Ron Lout, portfolio manager at Invesco Trust Co. in Denver, noting that Columbia's sudden undoing rattled the entire diversified gas industry. "Tenneco's definitely not looking sterling, and they're going to have to cut their dividend, though that's good for bondholders.
"My opinion is that this is a company that reflects the economy," Mr. Lout continued. "When the economu improves, this company will improve, so [Friday's issue] is a fairly cheap bond. You've got to believe in the story."
Shell Oil, one of the handful of triple-As left in the corporate market, stayed short with $250 million of three-year notes sold through competitive bid.
Lehman Brothers reoffered the noncallable notes as 7 1/8 to yield 22 basis points more than the when-issued three-year Treasury -- just five basis points more than agency paper.
Such tight spreads drew grumbles from money managers, who have been complaining over corporates' measly risk premiums for months.
"As far as the new issues go, there's nothing that appealed to me," said John Gardner, portfolio manager at Eagle Investment Associates in Boston. "I took advantage of the move to sell, [because] I think the market's a little overdone."
For now, Mr. Gardner is overweighting in mortgages and Treasuries, he said.
Elsewhere in the primary market, Dillard Department Stores Inc. offered $100 million of noncallable 20-year debentures as 9 1/8 to yield 93 basis points more than the Treasury long bond; Sonoco Products Co. made a rare appearance in the debt market with $100 million of 9.20% 30-yeawr debentures priced for a spread of 95 basis points; and NorWest Financial Corp. hit the seven-year sector with $100 million of senior notes priced as 8 1/2s to yield 71 basis points more than Treasuries.
In the high-yield market, active issues slipped about 1/2 point amid selling pressure from several insurance companies.
A $35 million bid list from First Capital Holdings -- and worries about any impending liquidation of junk bonds at ailing First Executive Life -- knocked the wind out of the market's sails, traders said.
"You've got the summer slowdown and some insurance companies dumping," said one high-yield bond portfolio manager. "It's not a catastrophe, but there's a recognition that there's supply, and people are getting out."
In ratings action, Standard & Poor's affirmed its A-plus ratings on Citicorp, but changed its outlook for the nation's largest banking company to negative.
The move affected about $22 billion of debt and preferred stock.
The agency said the affirmation reflects Citi's progress in shoring up its capital position.
So far this year, Citi has raised $1.25 billion of convertible preferred stock and sold a partial stake in its municipal bond insurer, AMBAC Inc.
Moreover, "many of the problems in the foreign and highly leveraged transaction portfolios have been identified and are being worked out," Standard & Poor's said. "Loan quality is poor but appears to be stabilizing."
