Higher yields on recent new issues have thawed the cold shoulders traditional junk buyers turned to the first quarter's new high-yield offerings.
"With yields increasing, we are starting to draw the more traditional high-yield buyers back into the marketplace," Steven L. Patricola, a vice president in BT Securities Corp.'s high-yield research group, said recently.
Earlier this year, analysts noted an influx of crossover investment-grade buyers that turned to the junk market when yields shrank in their sector. The added competition drove junk bond yields down.
Kevin Mathews, a high-yield portfolio manager at Van Kampen Merritt, said his company did not purchase any of the new high-yield deals offered in the first quarter.
Since then, however, Van Kampen has participated in deals by MGM Grand Hotel Finance Co., Paging Network, and Ornda Healthcorp.
New-issue yield levels were below, or more expensive, than the secondary market earlier this year, he said. Now, they are coming to market at yields above the secondary market, he added.
Though some of current credits are not as good as some of the names that appeared in the first quarter, "they are better than what we were seeing in the late '80s," Mr. Mathews said.
The large number of junk bond offerings that have been priced this year has also helped propel yields upward, he said. With so much selection, issuers have to add something to attract attention.
In secondary trading Friday, the high-grade market finished slightly higher in the long end.
"I think [the high-grade market] sort of fell asleep," one trader said, citing the impending Memorial Day weekend. The high-yield market also finished quiet and unchanged.
Costco Wholesale Co. issued $300 million of 5.75% convertible subordinated debentures due 2002. Noncallable for three years, the debentures convert into common stock at $41.25 a share, a 25% conversion premium over the previous day's closing price. Moody's Investors Service rates the offering Baal, while Standard & Poor's Corp. rates it BBB-minus.
Standard & Poor's has upgraded Medical Care International's subordinated debt to BB-plus from BB-minus. The action affects about $184 million of subordinated debt. The implied senior debt rating is BBB-minus.
"The upgrade reflects the Dallas, Texas-based firm's continued success as the largest operator of ambulatory surgery centers, and reduced concern by S&P regarding the impact of government restrictions on MEDC's joint ventures with physicians," according to an agency release.
Duff & Phelps Credit Rating Co. has reaffirmed the AA-plus rating of AT&T's long-term debt securities and the Duff 1-plus rating of AT&T's commercial paper, according to a Duff & Phelps release.
"The action also applies to the debt securities of AT&T's subsidiaries that are guaranteed or supported by AT&T, but, importantly, not to the long-term debt of NCR Corp., a wholly owned subsidiary since September 1991," the release says.
NCR's debt, currently rated AA-minus, remains on Rating Watch-Favorable pending determination of whether AT&T will assume responsibility for the debt, Duff & Phelps said.
Fitch Investors Service Inc. has assigned a BBB-minus rating to Long Island Lighting Co.'s $363 million of 7.95% preferred stock Series AA. The issue was drawn from a $490 million shelf registration that Fitch rated April 23. The credit trend is improving, Fitch said.
Standard & Poor's has assigned a preliminary A-plus rating to Torchmark's $200 million of Rule 415 shelf registration senior notes, the agency says in a release.
Additionally, the agency affirmed Torchmark's A-plus senior debt and A preferred stock ratings. Standard & Poor's action affects about $500 million of senior debt and $50 million of publicly held preference stock.
"Torchmark Corp.'s strength derives from its insurance units, which are well-capitalized and very profitable. As a result, interest coverage has been very strong though the company operates at relatively high debt leverage levels," the agency says. Standard & Poor's added that that debt leverage was relatively high at about 45%.