Reynolds American does first straight high-grade deal, joins Marathon Oil, Cargill new issues

By Aleesia Forni and Andrea Heisinger

New York, Oct. 24 - Corporate issuers Reynolds American Inc., Marathon Oil Corp. and Cargill Inc. waded into the high-grade bond market on Wednesday as the tone improved.

The primary market was dead on Tuesday as issuers sat on the sidelines due to negative headlines out of earnings announcements and Spain's debt woes.

Reynolds American led the pack on Wednesday with a $2.55 billion sale in three tranches. It's the first time the tobacco company has sold bonds since 2006, when it was junk rated.

Marathon Oil sold $2 billion in two tranches due 2015 and 2022.

An upsized $450 million offering of 30-year bonds was done by Cargill via Rule 144A and Regulation S.

The preferred stock market remained active as BB&T Corp. sold $450 million of $25-par noncumulative perpetual shares. By early afternoon, the size had been increased from $150 million.

Some issuers priced their deals in short order before an announcement from the two-day Federal Reserve Federal Open Market Committee meeting that concluded on Wednesday.

There were no big announcements coming out of the Fed, and key interest rates were kept at near-zero levels.

The bulk of issuance for the week is thought to already have been priced, sources said, although deals could still come out of the woodwork.

Thursday is expected to be "pretty quiet," one source said.

"I haven't heard of anything yet, but that doesn't mean it's not out there."

The Markit CDX Series 18 North American Investment Grade index widened 2 basis points to a spread of 99 bps.

The secondary market saw activity in notes from General Electric Co. and Bank of America on Wednesday.

General Electric's notes due 2017 firmed 1 basis point, while notes from Bank of America due 2014 were 10 bps tighter to close the session.

Reynolds in three parts

Reynolds American was in the market with $2.55 billion sale of senior notes (Baa2/BBB-/) in three parts, a syndicate source said.

The size of the trade was increased from a minimum of $1.5 billion. There was roughly $11.4 billion on the books for the sale, including $3.3 billion of interest for the three-year notes, $4.7 billion for the 10-year tranche and $3.4 billion for the 30-year bonds, the source said.

A $450 million tranche of 1.05% three-year notes sold at a spread of Treasuries plus 70 bps. The notes were sold at the tight end of guidance in the 75 bps area.

There was $1.1 billion of 3.25% 10-year notes priced at a spread of 150 bps over Treasuries. The spread was at the low end of talk in the 155 bps area.

Finally, a $1 billion tranche of 4.75% 30-year bonds sold at a spread of Treasuries plus 190 bps. This was at the tight end of talk in the 195 bps area.

There is a guarantee by certain domestic subsidiaries, including material domestic subsidiaries.

Bookrunners were Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Goldman Sachs & Co., Mizuho Securities USA Inc., Morgan Stanley & Co. LLC and Scotia Capital (USA) Inc.

Proceeds are being used to redeem or repurchase $625 million of 7.25% notes due 2013, to repay or prepay $550 million of a Reynolds American term loan along with accrued interest, to repurchase common stock and for general corporate purposes.

Reynolds was last in the bond market with a $1.65 billion sale in three tranches on March 18, 2006, when the company was junk rated (Ba2/BB). A 7.625% 10-year note from that offering was priced at a spread of 262.5 basis points over Treasuries.

The holding company for makers of tobacco products is based in Winston-Salem, N.C.

Marathon Oil's $2 billion

Marathon Oil priced $2 billion of senior notes (Baa2/BBB/BBB) in two maturities, an informed source told Prospect News.

A $1 billion tranche of 0.9% three-year notes priced at a spread of Treasuries plus 50 bps. The notes were priced significantly tighter than the Treasuries plus 70 bps area where they were talked.

There was also $1 billion of 2.8% 10-year notes sold at 105 bps over Treasuries. The tranche also priced much tighter than guidance in the 125 bps area.

The sale saw about $8 billion of demand, including $3.9 billion on the three-year notes and $4.1 billion for the 10-year bonds, the source said.

Citigroup Global Markets Inc. and Morgan Stanley & Co. LLC were active bookrunners.

Proceeds are being used to repay outstanding commercial paper and for general corporate purposes.

Marathon was last in the market with a $1.5 billion sale of bonds in two tranches on Feb. 11, 2009. That offering included a 7.5% 10-year note priced at 487.5 basis points over Treasuries.

The international energy company for oil sands mining and gas exploration and production is based in Houston.

Cargill upsizes

Cargill priced an upsized $450 million sale of 4.1% 30-year bonds (A2/A/A) at a spread of Treasuries plus 120 bps, a market source said.

The deal size was increased from $350 million.

Pricing was done under Rule 144A and Regulation S.

Bookrunners were Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. and J.P. Morgan Securities LLC.

Cargill last tapped the bond market with a $1 billion sale of notes in two tranches on Feb. 21.

The privately held grain and agriculture products company is based in Minnetonka, Minn.

BB&T plans preferreds

BB&T issued $450 million of 5.2% series F noncumulative perpetual preferred stock, a trader told Prospect News.

Dividends on the $25-par securities, when declared, will be paid on the first day of February, May, August and November, beginning on Feb. 1, 2013.

Bookrunners were Bank of America Merrill Lynch, BB&T Capital Markets, Deutsche Bank Securities Inc., Goldman Sachs & Co., Morgan Stanley & Co. Inc., UBS Securities LLC and Wells Fargo Securities LLC.

Around midafternoon, a trader noted that there was no selling group.

The trader pegged the issue at $24.75 bid, $24.82 offered in the gray market at midday.

After pricing, the trader quoted the preferreds at $24.78 bid, $24.85 offered.

Another market source said the paper was "mostly trading around $24.80."

The source remarked that the issue had been seen as high as the $24.90 area. "Then they ratcheted the yield in and the price dropped 10 cents," he said.

Meanwhile, the company's 5.625% series E noncumulative perpetual preferreds (NYSE: BBTPE) finished the day flat at $25.65, with nearly 1.4 million shares changing hands. The issue initially traded off on word of the new issue, hitting a low of $25.55 before coming back to the closing level.

Proceeds will be used for general corporate purposes, including possible acquisitions, the repurchase of outstanding common stock, the repayment or refinancing of debt and to provide funding for the company's subsidiaries.

BB&T is a Winston-Salem, N.C.-based financial holding company.

GE firms

The secondary market saw General Electric's 5.25% notes due 2017 tighten 1 basis point to 72 bps bid.

The company sold $4 billion of the notes at a spread of 140 bps over Treasuries in November 2007.

Bank of America tightens

In other trading, Bank of America's 7.375% notes due 2014 firmed 10 bps to 88 bps bid during the session.

The bank priced $3 billion notes due 2014 at Treasuries plus 537.5 bps on May 8, 2009.

Stephanie N. Rotondo contributed to this review

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