The Tennessee Valley Authority's $2 billion power bond offering was well received yesterday, but the deal arrived without a 30-year tranche that had been rumored earlier.
Early reports had spoken of 10-year, 30-year, and 50-year tranches. But yesterday morning, sources said the 30-year piece had been scrapped.
William F. Malec, chief financial officer of the authority, said TVA looked at a variety of structures and chose the one that offered the best way to "maximize our savings."
Yesterday's deal will save the agency roughly $20 million a year for 25 years in annual interest costs. The offering brings annual interest cost savings for the past four years to about $230 million, he said.
Proceeds from yesterday's deal will be used to refinance $2 billion of the $8 billion of debt the agency issued in 1989.
"The TVA deal went well," one high-grade trader said. He said the 30-year piece was probably scrapped because of lack of buyer interest. An underwriting source added that quite a bit of 30-year paper has been issued lately.
The first part of TVA's offering consisted of $1.25 billion of 6.125% power bonds due 2003. The bonds are noncallable for three years, after which they are callable at 103.22. They are callable at par in the ninth year. The bonds were priced at 98.716 to yield 6.30% or 50 basis points over comparable Treasuries. Price talk on the offering had called for a 45- to 50-basis point spread. Lehman Brothers Inc. served as lead manager, with First Boston Corp. and Goldman, Sachs & Co. as co-managers.
Part two consisted of $750 million of 7.250% bonds due 2043. Noncallable for 10 years, the bonds are then callable 105.4375, moving to par in the 40th year. They were priced at 97.508 to yield 7.44% or 83 basis points over 30-year Treasuries. Price talk on the offering called for an 80- to 85-basis point spread. First Boston served as lead manager, with Goldman Sachs & Lehman Brothers as co-managers.
TVA started the trend toward longer maturities in April 1992 with its $1 billion 50-year issue, Malec said. But unlike that issue, which was callable after 20 years, yesterday's 50-year deal is callable after 10 years. That gives investors a slightly higher yield, but TVA gets more flexibility in calling the issue, he said.
Jim Ho, a senior vice president at John Hancock Mutual Funds, described pricing on yesterday's deal as "fair," but said, "I'm just not keen on buying 50-year bonds at this point in the cycle." He cited "a lot of duration risk and spread risk."
While TVA issued a 50-year bond yesterday, Walt Disney Co. went, it half a century better with a 100-year offering.
Disney issued $300 million of 7.55% debentures due 2093. Noncallable for 30 years, the bonds were priced to yield 95 basis points over 30-year Treasuries. Moody's rates the offering Aa3, while Standard & Poor's rates it AA-minus. Morgan Stanley & Co. was lead manager of the offering, which was increased from $150 million.
In secondary trading, spreads on high-grade bonds tightened in the intermediate and long ends. High-yield bonds were down 1/8 to point.
Federal National Mortgage Association issued $300 million of 5.27% medium-term notes due 1998 at par. Noncallable for a year, the notes were priced to yield 18 basis points over comparable Treasuries. Merrill Lynch & Co. managed the offering.
Mellon Bank NA issued $250 million of 6.5% subordinated notes due 2005. The noncallable were priced at 99.58 to yield 6.55% or 80 basis points over 10-year Treasuries Moody's rates the, offering A3, while Standard & Poor's rates it A-minus Kidder, Peabody & Co. was lead manager on the offering.
Pet Inc. issued a two-part offering totaling $200 million. The first tranche consisted of $100 million of 5.750% notes due 1998. The noncallable notes were priced at 99.910 to yield 5.77% or 67 basis points over comparable Treasuries. Part two consisted of $100 million of 6.5% notes due 2003. The noncallable notes were priced at 99.632 to yield 6.55% or 78 basis points over comparable Treasuries. Moody's rates the offering Baa2, while Standard & Poor's rates it BBB-plus. First Boston Corp. was lead manager of the offering.
First Chicago Corp. issued $150 million of floating-rate subordinated notes due 2003 at par. The notes float quarterly at 12.5 basis points over the London Interbank Offered Rate. They pay quarterly. Moody's rates the offering Baa2, while Standard & Poor's rates it A-minus. First Boston Corp. managed the offering.
Mississippi Power & Light issued $60 million of 7.70% general and refunding mortgage bonds due 2023. Noncallable for five years, the bonds were priced at 99.094 to yield 7.778% or 119.5 basis points over comparable Treasuries. Moody's rates the offering Baa3 while Standard & Poor's rates it BBB. Kidder, Peabody & Co. was lead manager of the offering.