When Payless Cashways Inc. killed its proposed stock offering, its $215 million proposed junk bond offering became a casualty as well.
The company said yesterday that the canceled 45,000,000 share initial public offering of common stock was part of a recapitalization plan that included the up to $215 million senior note offering and a new bank agreement for up to $450 million.
In addition to the stock and debt offerings, the company also withdrew its tender offer for the $332.5 million outstanding aggregate principal amount of its 14 1/2% senior subordinated debentures due 2000. The tender offer was also part of the recap.
"In assessing market conditions, we determined that we could not complete this offering within the parameters which we believed were beneficial to the company and its investors," David Stanley, Payless's chairman, said in the release. "Therefore we have decided to withdraw the offering."
Merrill Lynch & Co.; Goldman, Sachs & Co.; and Piper, Jaffray & Hopwood Inc. were managers on the stock offering, while Goldman Sachs and Merrill Lynch were handling the senior note offering. Merrill Lynch declined comment, while Goldman referred all questions to the company's release.
Payless's announcement prompted downgrades from Moody's Investors Service and Standard & Poor's Corp. Moody's lowered the company's 14.5% senior subordinated debentures due 2000 to B-3 from B-1.
"As previously announced, the B1 rating was contingent on the successful completion of the planned stock issues and concurrent debt financing," Moody's said in a release.
Standard & Poor's downgraded the debentures to B-minus from B-plus.
An analyst from another firm said, "It's a definite negative for the company both in terms of its image and the capital structure as well." She added that the company was "still a good credit."
SEC Issues Cease Order
In other news yesterday, the Securites and Exchange Commission issued a cease and desist order to the State Bank of Pakistan for allegedly offering unregistered bearer bonds for sale in the United States.
According to SEC documents, beginning on March 16, advertisements for the bonds appeared in the Wall Street Journal, The Washington Post, and in U.S. editions of The Financial Times. The advertisements said no questions would be asked about the source of funds.
In March 19 letters to the Federal Reserve, SEC, and Federal Deposit Insurance Corp., Sen. John F. Kerry, D-Mass, and Sen. Hank Brown, R.-Colo., asked for help in "shutting down the apparent attempt by the state bank of Pakistan to seek profits from drug money launderers and other depositors desirous of a secret place to put their money."
The state bank consented to the SEC's order without admitting or denying the alleged violation.
In other news, Salomon Inc. yesterday said it earned $190 million in the first quarter of 1992, a 30% drop from net earnings of $273 million during the same period last year.
Several of Salomon's U.S. investment banking competitors have reported record earnings during 1992's first quarter, resulting partly from heavy new issue calendars for both debt and equity securities in the United States and primarily favorable trading conditions worldwide, a Salomon release noted.
"In the important areas of new issue underwriting and investment banking assignments, Salomon Brothers' revenues continue to be negatively impacted by customer reaction to the uncertainties surrounding U.S. Treasury auction investigations," the release said. "Salomon Brothers' securities trading and debt underwriting results were highly unsatisfactory in the first quarter," it said.
Yesterday's Markets
Though high-grade corporates generally lag Treasuries, so little supply exists that when the long bond moved up nearly 1/2 point yesterday, high-grade corporates move up right in step, one trader said. High-yield bonds lost about 1/8 point.
K-III Communications Corp. issued $250 million of 10.625% senior secured notes due 2002 at par. The notes are callable at 104 in five years, moving to par in 2000. A 50% sinking fund begins in 2001. Donaldson, Lufkin & Jenrette Securities Corp. managed the offering. Moody's rates the offering Ba2, while Standard & Poor's rates it BB.
Federal Farm Credit Banks issued $75 million of floating rate notes due 1993 at par. The notes float daily at 255 basis points below the prime rate and pay quarterly. Prudential Securities managed the offering.
Federal Farm Credit Banks issued $50 million of 8% mediumterm notes due 2002. Noncallable for three years, the notes were priced at 99.932 to yield 8.01%, or 50 basis points over 10-year Treasuries. Lehman Brothers managed the offering.
Federal Farm Credit Banks issued $60 million of 7.02% notes due 1997 at par. Noncallable for two years, the notes were priced to yield 26 basis points over five-year Treasuries. Merrill Lynch managed the offering.
Federal Farm Credit Banks issued $25 million of 8.30% notes due 2007 at par. Noncallable for three years, the notes were priced to yield 78 basis points over 10-year Treasuries. Merrill Lynch managed the offering.
Yesterday's Ratings
Standard & poor's has given a BB-minus rating to Quanex Corp.'s proposed $75 million preferred stock offering and upgraded Quanex's subordinated debt rating to BB-minus from B-plus. The implied senior rating is BB-plus. Debt outstanding as of Jan. 31, 1992, totaled about $146 million.
"Quanex's good competitive position in its specilty steel and aluminum businesses has allowed the company to generate better-than-anticipated earnings in the face of cyclical lows in its major markets," Standard & Poor's said.
Moody's upgraded Quanex Corp.'s senior notes to Ba2 from Ba3 and raised the rating of the company's convertible subordinated debentures due 2008 to B1 from B2. The agency also gave a b1 rating to Quanex's proposed convertible exchangeable preferred stock.
"The rating upgrade reflects Quanex's proven performance in a recessionary environment, the strengthening of its equity base following the ongoing coversion of its convertible debentures, and the expectation of additional operating efficiencies resulting from large capital investments," a Moody's release said.
