The Tennessee Valley Authority decided to issue bonds at 7:30 a.m., called Salomon Brothers Inc. at 8:15 a.m., and the firm priced a $1.5 billion offering by 3 p.m.
"We surprised everyone I think," William F. Malec, TVA's executive vice president and chief financial officer, said about the speed with which yesterday's deal was done. The offering, for which Salomon Brothers served as lead manager, included a 50-year tranche.
The first tranche of the two-part power bond offering consisted of $1 billion of 4.6% bonds due 1996. Noncallable for a year, the bonds were priced at 99.814 to yield 4.667%, or 19 basis points more than comparable Treasuries.
The second tranche consisted of $500 million of 6 7/8% bonds due 2043. Noncallable for 10 years, the bonds were priced at 96.492 to yield 7.133%, or 80 basis points more than comparable Treasuries.
"The $500 million is all sold and the other deal is in very good shape," a source familiar with the offering said. TVA will use proceeds from the sale to refinance existing debt, Malec said, adding that the deal is expected to save the agency roughly $31 million in annual interest costs for each of the next 15 years. With yesterday's offering, TVA has saved more than $260 million in annual interest savings since it began tapping the public debt markets in 1989, Malec said.
Also yesterday, the Republic of Argentina launched its $750 million global bond offering yesterday, and pricing is expected this morning.
Price talk on the 10-year bonds is 280 to 285 basis points over comparable U.S. Treasuries, a source familiar with the offering said.
Underwriting the offering are Merrill Lynch & Co., Salomon Brothers, and Banco Rio de la Plata.
In other news, Xerox Corp. announced a worldwide restructuring that includes the elimination of more than 10,000 document processing jobs.
Also under the restructuring, which Xerox will carry out over the next two to three years, the company will close and consolidate certain facilities, streamline its business processes and organizational structure, and thin management layers, according to a company release. The company is also weighing whether to contract out some operations.
Xerox will take a roughly $700 million, or $6.82 a share, after-tax charge in the fourth quarter to cover the workforce reductions and other restructuring actions, the release says.
Xerox will trim the jobs through attrition, layoffs, and controlled voluntary programs. About half of the job cuts will take place in 1994.
The document processing workforce numbers 97,500 worldwide.
Paul A. Allaire, Xerox's chairman and chief executive officer, said yesterday's action "is not a function of any change in the current business environment, but rather it accelerates numerous productivity initiatives that have been under careful consideration for some time."
The restructuring's purpose is to improve productivity and "significantly" lower the document processing company's cost base, the release says.
"The initiatives we plan reinforce our basic commitment to participate in the growing opportunities in the digital publishing, electronic printing, and color markets," Allaire said. "Our long-term strategic direction is right and it continues on course."
Xerox also said it would take a $154 million, or $1.50 a share, after-tax charge against fourth-quarter results reflecting settlement costs for an antitrust class action lawsuit.
The suit involves allegations from independent service organizations that Xerox would not sell them spare parts for high volume copiers and printers, said Thomas C. Abbott, a Xerox spokesman.
While the settlement must receive approval from the U.S. District Court in Marshall, Tex., Xerox is taking the after-tax charge in anticipation of it, Abbott said.
"There really hasn't been much trading activity," one analyst said of Xerox bonds.
A high-grade trader expressed surprise that Moody's Investors Service put Xerox Corp. and its subsidiaries' long-term and short-term debt under review for a possible downgrade. Though the trader hadn't seen any movement in the bonds, he expects the debt to widen two to three basis points at most on that news, he said. The review affects roughly $6.1 billion of securities, Moody's said in a release.
The rating agency said its review was triggered by Xerox's announcement that it will take the after-tax charges to cover the layoffs, closings and consolidations, and settlement of the antitrust class action suit.
In secondary trading yesterday, high-yield bonds ended 1/8 point higher. Revlon debt was a touch weaker following its recent two- to three-point run-up. Spreads on high-grade issues tightened, particularly seven to 10-year industrials.
PNC Bank Ohio issued $250 million of 3.65% bank notes due 1994. The noncallable bonds were priced initially at par. Moody's rates them A3, while Standard & Poor's Corp. rates them A-plus. Goldman, Sachs & Co. was the sole manager.