Carolco Delays Its Offering of ‘Junk’ Bonds

A $50-million debt offering by Carolco Pictures was delayed until this week at the earliest, due to the unsettled conditions of the “junk” bond market, one underwriter said late last week.

An initial Carolco stock offering did proceed Wednesday, but the number of shares was pared to 3.6 million priced at $9 each, down from 6.5 million shares initially proposed for sale at $11 to $13.

Carolco, a Los Angeles movie company that owns rights to Sylvester Stallone’s “Rambo” films, recently had reduced the proposed price range to between $9 and $11. Company founders Mario F. Kassar and Andrew G. Vajna, who had planned to sell 2 million shares of their own holdings, decided not to offer any shares at this time. The company’s portion of the offering was reduced by 900,000 shares.

“The entertainment market was soft enough that we felt we needed to do a little less . . . in order to have a deal that traded well in the after-market,” said Tim O’Donnell, a vice president at Paine Webber, the investment firm that managed the stock offering.

O’Donnell said Carolco’s debt offering of senior subordinated notes was delayed “to let the debt market settle a little bit.” He alluded to the market for high-yield, high-risk junk bonds, which has been rocked by an ongoing federal probe of insider trading.

Federal investigators recently issued subpoenas to learn what role, if any, was played by the investment banking firm of Drexel Burnham Lambert in trading by financier Ivan F. Boesky, who has admitted using non-public information to make profits on investments. Drexel accounts for nearly half the trading in the junk bond arena.

O’Donnell said one other “adverse” market condition was created by Cannon Group’s disclosure of losses, and a formal Securities and Exchange Commission probe into that movie company’s financial condition and accounting practices. Since the disclosure last month of the expanded SEC probe, Cannon’s stock has tumbled $14 a share, closing Friday at $12.75 on the New York Stock Exchange. In addition, two credit-rating agencies have said they are considering downgrading Cannon’s $242-million in outstanding junk bond debt.