Recession may cut Varity Corp.'s revenues by close to 15% this year, but the company is performing well in its established markets and making inroads elsewhere, said Sean St. Clair, a high-yield analyst at Duff & Phelps/MCM Investment Research Co.

"I'm really impressed. I like what they are doing," said Mr. St. Clair, whose agency is evaluating the company for a first-time rating.

Varity, a Buffalo, N.Y.-based holding company, is currently readying for market a $150 million senior note issue due 1998.

Dillon, Read & Co. will manage the offering, and a roadshow is scheduled for later this month. St. Clair, who expects to have a critique ready by next week, declined to speculate about the issue's potential rating.

Varity will use proceeds both to refinance $123.7 million of 13 1/4 guaranteed senior subordinated notes due 1992, issued by subsidiary Kelsey-Hayes Co., and to pay down additional short-term debt, Mr. St. Clair said.

Henry Pollock, Varity's assistant treasurer, said the company plans the offering soon because it saw a the offering soon because it saw a "window of opportunity."

"Rates are good, and plus it's a little over a year and the 92s are due," Mr. Pollock said, adding that the notes have a bullet maturity.

Like its parent, Kelsey-Hayes is expected to see a drop in revenues this year-- at 8.9%.

While varity is expected to see revenues drop by 14.9% for the year ending Jan. 31, 1992, last year brought a sharp increase. In the fiscal year ending Jan. 31, 1991, Varity generated $3.56 billion in annual revenues, a 49.7% increase over the previous year's $2.38 billion. But Mr. St. Clair noted that 1991 marked the first full year revenues from Kelsey-Hayes Co. were included.

"They've gotten pretty hard hit this year," Mr. St. Clair said.

Varity, which has just moved its operations from Toronto to Buffalo, has its roots in the MAssey-Ferguson Group, an agricultural company. The subsidiary has traditionally sold tractors in Western Europe, but recently has made inroads in Eastern Europe, especially Czechoslovakia, Hungary, and the former East Germany. Mr. St. Clair believes potentially strong demand for agricultural equipment exists in that region.

Given the cyclical nature of agricultrally oriented Massey Ferguson, Varity decided to diversify by purchasing Dayton Walther Corp. in 1987. That subsidiary manufactures components for medium and heavy trucks, Mr. St. Clair said.

In 1989, Varity purchased Kelsey-Hayes, the largest individual producer of passenger car steel wheels and the dominant producer of anti-lock brakes for light trucks. The outlook for this segment remains positive because of the company's contracts to supply parts.

Another Varity subsidiary, Perkins Engines Ltd., primarily manufactures a variety of diesel engines ranging from 50 to 100 horse power. Some 12% of Perkins annual revenues were generated by sales to Massey Ferguson.

Pacoma, still another subsidiary, manufactures hydraulic cylinders and valves. Located in West Germany, some 28% of its 1991 revenues were from sales to Massey Ferguson.

In the high-yield market overall yesterday, secondary trading was flat, while the investment grade market saw less than expected new issuance activity and moderate secondary trading.

Tapping the investment grade market yesterday was Private Export Funding Corporation, which issued $150 million of 7.90% non-callable secured notes due 2000. The notes were priced at 99.873 to yield 7.92% or 38 basis points over seven-year Treasuries. Both Moody's Investors Service and Standard & Poor's Corp. rate the issue AAA. Citicorp managed the deal.

In ratings, Duff & Phelps Inc. downgraded The Times Mirror Co.'s senior debt t A-plus from AA-minus, the agency said. Approximately $1 billion of debt securities is affected. Duff & Phelps said its action reflects its "continuing disappointment" in the company's financial performance.

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