The Securities and Exchange Commission is rumored to be investigating a sharp rise in Harcourt Brace Jovanovich Inc. bonds in the days preceding announcement of a revised merger plan.
One trader said the commission has subpoenaed trading records from several Wall Street firms in connection with its investigation.
"I know that they are investigating. I know that they have subpoenaed records," he said. The trader would not comment on whether his firm had been subpoenaed.
The commission's policy is neither to confirm nor deny investigation rumors, a spokesman there said.
Several firms contacted Friday said they had not received subpoenas.
The commission is rumored to be investigating two "high-profile" money managers, possibly from Boston, and one New York metropolitan area corporation in connection with the Harcourt bond surge, traders and others said.
After Harcourt's bonds moved up sharply two days before the announcement of a $1.5 billion revised merger plan agreement between that company and General Cinema, a few high-yield traders alleged insider trading.
"It goes on from time to time, usually in very subtle ways," another trader said. But Harcourt's case was different, he maintained.
"It's so blatant it's not even a veiled effort," he said.
Traders observed a sharp rise in HBJ's bonds August 20, two days before the August 22 joint announcement by Harcourt and General Cinema concerning the revised merger plan.
"Somebody definitely knew something," a source had told The Bond Buyer earlier.
"The bonds moved up five points two days before," said the trader, who asked not to be named. "That doesn't happen because somebody's got a hunch."
The Aug. 20 announcement also said General Cinema had reached agreement with Harcourt's bondholders committee and that its members had agreed to tender all their securities. No one at Harcourt was available for comment Friday.
Though unaware of the rumor, one analyst said that while precedent exists for determining insider trading in the stock market, the bond market, especially the high-yield sector, lacks such a precedent. For the high-yield market to operate efficient and fairly "a level playing field" is necessary, he said.
Overall yesterday, the high-yield market was strong and up 1/4 to a 1/2 point, with investment grade bonds up about a 1/4 point in secondary trading, traders said.
Tapping the investment grade market yesterday was the Coca-Cola Co., which issued $250 million of noncallable notes maturing in 1998 and priced to yield 7.933%, or 33 basis points over comparable Treasuries. Moody's Investors Service Inc. rates the deal Aa2 while Standard assigned an AA. Merrill Lynch managed the deal.
In other news, Standard & Poor's has placed on negative CreditWatch Kirby Corp.'s BBB-minus rating on $50 million of 7.25% convertible subordinated debentures due 2014. The action came after the firm's recent announcement that it plans to acquire Lepercq Pioneer 101 Corp. for $145 million.
Kirby, involved in marine transportation, diesel engine repair, and property and casualty insurance, plans to finance the acquisition with cash, bank borrowings, and the sale of new equity, the agency said.
While the acquisition's completion will expand Kirby's marine transportation and diesel repair businesses into the Pacific Northwest and bolster its current West Coast operations, the $78 million in additional debt will probably produce credit ratios sharply lower than previously expected over the intermediate term, Standard & Poor's said.