Why are investors lining up to buy junk again? In RJR’s case, analysts say, the company has maintained a strong cash flow from products like Oreo cookies, Ritz crackers and Winston cigarettes and has a confidence inspiring boss in chairman Louis V. Gerstner Jr. With an investment rating of BB-plus, only one notch below investment grade, RJR’s new bonds are considered less risky than the company’s previous issues. And they yield 10.5 percent-at least 2.6 points more than comparable Treasury securities. While investors are unlikely to regain their appetite for ’80s-style junk used to finance pricey takeovers, RJR’s success could prompt other companies to roll out tamer ’90s-style offerings. “The fact that the market snapped up a new issue indicates that there are now investors eager to purchase junk debt,” says Terrence Dwyer, an analyst for Duff & Phelps/MCM. But this time around, they’re sure to be more cautious about just how junky those bonds really are.
