Martin Marietta Corp. of Bethesda last week said it intends to offer $150 million worth of low-yielding 7 percent debentures, due in 2011, at a drastically discounted price of 60 cents or less on the dollar.
The discount means that Martin Marietta will obtain a maximum of only $90 million from the public sale. But the aerospace and construction materials concern will be raising relatively cheap long-term funds at a time when many corporations are encountering difficulty in borrowing at all.
Martin Marietta's offering is scheduled to get under way as early as this week. It also will include $50 million worth of notes due in 1991. Both issues are being sold through underwriters led by Goldman Sachs & Co. and Blyth Eastman Dillon & Co.
The debentures are designed to appeal mainly to pension funds and other nonprofit institutions, which don't have any tax liablity for amortizing the potential gain between their lower purchase price and the face value repayment at final maturity. "We recognize there is a very heavy demand among such investors for deep-discount bonds of high quality," a Goldman Sachs official said.
Indeed, some well-heeled Middle East investors are said to be urging the issuance of so-called "zero-coupon" bonds that don't pay any periodic interest at all. The 7 percent coupon by Martin Marietta is about half of its estimated current rate on fully priced securities and far below the discount on any previous corporate issue in the U.S. public market, according to several analysts.
Such bonds tend to appreciate faster than other types whenever interest rates decline and their low coupons provide reduced reinvestment exposure to sharp rate fluctuations. There Martin Marietta debenture holders also will be protected against early redemption at a price below face value.
Existing debt obligations of the Bethesda company are rated A by Moody's and AA-minus by Standard & Poor's.
If successful, the Martin Marietta sale is certain to be copied by other U.S. concerns as an unfavorable combination of record high interest rates, fierce borrowing competition from the federal government and unwilling long-term lenders has put corporate balance sheets in the worst condition in many years.