By DAVID FELDHEIM and JENNIFER ABLAN
Dow Jones Newswires
NEW YORK -- Despite volatile markets and uncertainty about the
election outcome, both the asset-backed and convertible bond markets
saw huge new issues.
In one of the largest offerings of its type, the Ford Motor Credit unit
Ford Motor Co. issued $3.7 billion of auto-loan asset-backed securities.
Meanwhile, Tyco International Ltd., a manufacturing and services
concern, sold $3 billion [proceeds] of zero-coupon convertible bonds,
among the largest convertible issues ever done.
In addition, electronics manufacturer
Solectron Corp. late Tuesday was
expected to sell $1 billion to $1.8 billion
of zero-coupon convertibles.
The convergence of the issues didn't
signal that the debt markets are open
for business as usual, analysts said.
Rather, investors are in a selective
frame of mind, willing to look at certain
deals by certain issuers. "Investors
want companies with strong cash-flow
positions and a strong credit picture,"
said Tom Sugiura, a vice president in convertible research at Bear,
Stearns & Co.
People familiar with Ford Motor Credit's deal said the company has
raised its presence in the asset-backed sector because of the adverse
publicity its parent has suffered in the aftermath of the
Bridgestone/Firestone tire recall.
Because of the way they are structured, asset-backed securities can
qualify for triple-A ratings by major credit-rating agencies, as in the
Ford Motor Credit offering.
Anthony Thompson, head of ABS analysis at Goldman, Sachs & Co.,
said it "appears a lot of fixed-income investors have embraced the idea
that certain types of asset-backeds from large liquid issuers are a good
defense against event risk that might otherwise exist in the corporate
From an investor's perspective, Mr. Thompson added, large auto
issuers have less event risk.
A similar view was expressed by Niel McPherson,
ABS research head at Credit Suisse First
Boston, who said the ABS market "is not
charging Ford a premium to finance."
However, the yields of the asset-backed securities were at the wide end
of expectations, largely because of an "inordinate amount of supply"
that has come to the market in recent weeks, said Jeff Young,
securitzation manger for Ford Motor Credit.
In contrast to a sale of similar securities in October, Tuesday's didn't
attract much foreign buying, Mr. Young said. That is because the
structure of the issue was somewhat different, he said.
Separately, Tyco's convertible offering had a yield-to-maturity of 1.5%
and a conversion premium of 36%. It drew strong demand, which led to
an increase from an originally planned $2 billion size. Moody's Investors
Service rates Tyco International's senior unsecured notes Baa1 and
Solectron at Baa3.
Solectron was expected to provide a revised yield-to-maturity of 3.25%
and a conversion premium of 32% on its zero-coupon convertible deal.
Original indications were a yield-to-maturity between 2.75% and 3.25%
and a conversion premium of 30% to 35%.
John Everhart, senior securities analyst at American Express Financial
Advisors in Minneapolis, who manages the $4 billion AXP Bond Fund,
said the near-simultaneous sale of two giant convertible offerings
initially had posed concerns about how well the market might be able to
absorb the issues. But, "even with the size of the offerings, they are
better quality names," he said.
Although Tyco picked up outstanding convertible debt as part of a
previous acquisition, Tuesday's deal was the first to bear the Tyco
name, said Michael Robinson, Tyco's senior vice president and corporate
treasurer. "We knew that investors were really looking for high-grade,
large-cap names," he said.
While the convertible market moves in sympathy with stocks and
bonds, convertibles have performed better than most other financial
markets, said Anand Iyer, a managing director and head of global
convertible research at Morgan Stanley Dean Witter in New York.
Convertibles are hybrid securities that include some of the features of
bonds, such as a regular coupon or dividend payments, but also allow
investors to wager on a company's stock. They are convertible into
shares of the issuing company's common stock, which provides an
opportunity to benefit from appreciation in the stock price.
Both convertible offerings were brought via Merrill Lynch. Officials at
firm declined to comment.
Treasurys ended mixed, as short maturities edged lower on news of
somewhat stronger-than-forecast retail sales and a surge in stocks that
drew interest away from bonds.
But longer Treasury issues gained on repositioning linked to
developments in the election vote-recount saga.
The benchmark 10-year Treasury was up 5/32 point, or 94 cents per
$1,000 face value, at 99 30/32. Its yield fell to 5.744% from 5.761%
late Monday, as yields move inversely to prices.
Meanwhile, the 30-year Treasury bond's price was up 11/32 at 106 2/32
to yield 5.811%, down from 5.833% Monday.
Treasurys met pressure after the
Commerce Department said retail
sales, excluding autos, rose 0.4%
last month, slightly more than
forecast by economists.
Bonds fell more as the Dow Jones
Industrial Average and the Nasdaq
Composite Index both surged. When
stocks weaken, investors often shift
funds to the relative safety of
government securities. Money may
flow back to stocks from bonds when
The bond market also was influenced
by events related to the presidential
election. News that the Florida
secretary of state would have
discretion to consider recounted and absentee votes past a 5 p.m. EST
deadline Tuesday was viewed by some traders as favorable for Vice
President Al Gore, even though it was uncertain whether the
development might actually help Mr. Gore in the tally.
Some bond investors believe a Gore victory would be more favorable for
the Treasurys market, leading to larger reductions in outstanding
In other credit markets:
The new-issue pipeline of the corporate bond market continued to grow
despite another day of waiting for a resolution over the results of the
U.S. presidential election.
Prices for U.S. mortgaged-backed securities ended slightly higher to
unchanged Tuesday in volatile trading.
The Eurobond session was led by midsize issues from Finance for
Danish Industry and Framtiden Housing Finance, while long-term
government debt outperformed the short.
-- Steven Vames and Angela Pruitt contributed to this article.
Write to David Feldheim at firstname.lastname@example.org and Jennifer
Ablan at email@example.com