Investors were taking a critical look at CVS Corp.'s $75 million lease-backed offering last week, trying desperately to uncover value, said sources. The deal, agented by JP Morgan, is currently experiencing a considerable price widening that reflects the skeptical outlook from the buy-side.

The notes, which carry a 22-year maturity, were originally finding price talk at 190 basis points over Treasurys but took a drastic increase finding talk last week at a range of 220 to 240 basis points over Treasurys. Moody's rates CVS a triple-A quality credit.

"With this type of deal you have two credits to analyze, there are too many things to consider," offered one buy-side source who was trying to work through the details of the offering.

CVS may seem particularly unattractive to investors because of its Residual Value Insurance Policy. As one buy-side source explains, "CVS may belong to CVS for 22-years but for at least one nanosecond, a percentage of it is covered by residual insurance."

Though the prices may be attractive, the risk is something investors dealing with a volatile market are hardly willing to take. "The RVI on the balloon payment adds unneeded stress in these types of real estate transactions and does not ensure that the tenant will in the end be able to pay," explains one source.

CVS intends to use funds generated from their issuance to finance 27 new stores.

The company reported total revenue of $18.1 billion in 1999. It owns over 4100 stores and opened 433 of them in 1999. CVS is one of the largest providers of prescriptions in the U.S.

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