Credit crunch? You won't see it on Wall Street


New York -- Need money?

Commercial banks may be credit-crunching, but investment +V banks are raising cash at a record-breaking pace. It is Wall Street in textbook form, providing resources for companies that can make a case they deserve it.

Reflecting the manic shifts of attitudes of the financial markets, the new mood has even showered fresh resources on companies that were despised as recently as last fall. On Thursday, USF&G;, the embattled Baltimore-based insurer that is attempting a revival under new management, raised $190 million in a convertible preferred stock offering. Both the size and the price were adjusted at the last moment because of strong demand.

Leveraged retailers, possibly the two most hated words for investors and lenders in 1990, have been embraced by stock buyers this spring. Caldor's, Filene's Basement, Ann Taylor and Safeway all have attracted new equity investment, lowering (but not eliminating) the financial risk stemming from the heavy debt on their balance sheets.

Other companies that had gone private or been acquired in leveraged deals have done likewise, including Fruit of the Loom, Duracell International and, soon, Marvel Comics.

Suddenly, bankers and executives have decided that stronger balance sheets mean better companies. "They are cleaning up a lot of the messes of the past five years," said Dan Frank, a portfolio manager at Fidelity Investments.

Ordinarily, any indication of investor willingness to sop up shares prompts a wave of initial public offerings by small, high-growth businesses with good ideas and empty coffers. Technology and health-care companies predominate.

True to script, these companies were quick to the market several months ago. But although there's still some investor interest in these companies, it's begun "to slacken off," said Richard Franyo, head of corporate finance at Alex. Brown & Sons. He attributes the shift to the fact that many of the best companies have already been taken public.

Genesis Health Ventures, a nursing home operator in Maryland, Pennsylvania and Massachusetts, is in the process of cutting back the size of a public offering by a third, said William Martindale, a partner in the West Conschohocken, Pa., money management firm Martindale Andres & Godschalk Inc. "The market just flip-flopped. That represents exactly what is happening in the IPO [initial public offering] market. The window that opened a month ago is halfway closed, and people with their fingers on the ledge are just sweating."

rTC The most striking aspect of the current surge in offerings, however, is how far beyond small company initial public offerings it has extended. In recent months the rest of the market has been clamoring for, and getting, cash. "This year, everyone is raising capital," Mr. Franyo said.

Westinghouse, Mellon Bank, Rite Aid, USAir -- name the industry, name the company, and there's a chance it has recently gotten, or considered getting, a slug of money. A benchmark issue was the recapitalization of RJR Nabisco two years after it went through the largest leveraged buyout ever. In April it raised $1.2 billion in equity and $1.5 billion in debt, and that opened the door for even speculative-grade companies to borrow for the first time since February 1990, said Raymond Wong, a managing director of Merrill Lynch.

In the past month, two other "junk"-rated companies, Chiquita Brands Co. and Johnston Coca-Cola Bottling Group Inc., have issued new debt. Many of the investors, said Mr. Wong, normally buy investment-grade debt but because of the recent fall in interest rates have crossed over to junk to get higher yields.

Even companies unknown in the United States are raising cash here. One of the most interesting deals was a $1.09 billion offering of shares in Telfonos de Mexico, the formerly nationalized Mexican telephone services. There is more to come -- most notably an offering of shares in Elf-Aquitaine, the French oil company.

Why the surge? "We have strong debt and equity markets, and there is a very strong need," said Hank Paulson, co-head of investment banking at Goldman Sachs.

With the Dow Jones industrial average hovering near its all-time high and interest rates down to levels seen rarely in the 1980s or 1970s, the cost of money is low. Traditionally, companies have raised money to grow or to provide a cushion in tough times. Recently, there has been an added inducement: Companies raising cash, Mr. Paulson said, have seen their stock prices rise at the same time.

Two recent Nobel Prize winners, Merton Miller and Franco Modigliani, gained fame by reasoning that the proportion of debt and equity on a company's balance sheet shouldn't affect its inherent value.

But the way balance sheets are perceived by investors appears to have as much to do with current fashion as with intrinsic value. During the 1980s, debt was considered good.

Now, frightened by the recession and the wave of bankruptcies, the opposite is true. Investors have demonstrated a willingness to provide funds for companies to eliminate


Still, despite the general ebullience, not every deal can be done. To be attractive, a company should have stable or improving margins and have shown some ability to weather the current recession, a number of investment bankers say. That reassures buyers that the new money will generate additional business and not be frittered away in a desperate effort to survive.

Moreover, even though there is a vast backlog of deals still in the pipeline, the amount of money to be invested is not infinite.

"Five or six weeks ago, it was non-discriminating. Almost any deal could be sold," said William Schreier, who heads the equity syndication department at Morgan Stanley. "Now, as the rise in the stock market has stalled, investors are becoming a little more discerning, and some deals are having a little more difficulty getting done. There is a bit of selectivity going on."

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