A flood of corporate debt is in the offing for the new year Declines in rates cited. Shelf registrations with SEC increasing.

December 30, 1991|By New York Times

NEW YORK -- If the declines hold, investment bankers and economists say, the quarter-point drop in both short- and long-term interest rates since mid-December is likely to bring a torrent of corporate debt issues in the first weeks of the new year.

The holidays have prevented most companies from moving faster. As the end of the year approaches, traditional buyers retreat to the sidelines and many of the investment bankers who market the debt are on vacation.

"There is no one around to buy them or sell them, and investment committees are not going to meet this time of year," said a corporate finance specialist at a large New York investment bank.

"But the declines in rates we have seen over the last two weeks are very significant and make billions of bonds callable. The question is if companies will do it quickly."

Large companies accustomed to tapping the credit markets are likely to be quickest to respond to the drop in rates. But analysts and executives say corporations of all sizes could help their balance sheets by issuing new securities.

"This last downward move in rates was sufficient to put in place the economies needed for replacement financing for virtually all corporations," said Lindley B. Richert, who heads MCM Inc., an investment advisory firm in New York, "and it opens the door for tenders and outright net redemptions without replacement financing."

The securities have not yet been brought to market, but the list of corporations that have filed so-called shelf registrations with the Securities and Exchange Commission is growing.

Among those who may offer new debt are companies that investment bankers say are rarely in the debt markets, like Polaroid Corp. and Phelps Dodge Corp.

In addition to the filings, a handful of companies placed calls over the last week on outstanding debt securities carrying interest rates that until recently would have seemed reasonable.

This group includes PSI Energy Inc., which on Friday said it was redeeming all of its outstanding 8 7/8 percent bonds due on Oct. 1, 2008. The company said that it would refinance the issue through secured medium-term notes and that it anticipated savings of more than $10.5 million.

Merrill Lynch's corporate bond index shows that yields on AAA-and AA-rated bonds with maturities of one to 10 years have fallen to 7.16 percent over the last year, from a 52-week high of 8.96 percent.

As of Thursday, yields on A-rated bonds of similar maturity stood at 7.77 percent according to Merrill's index, down from a high of 10.01 percent.

Through Dec. 26, more than $133 billion worth of new investment-grade corporate bonds had been priced in 1991, according to data from Moody's Investors Service, the bond-rating agency, easily eclipsing the $110 billion worth of debt offered in 1986.

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