Rio Tinto, BNSF do opportunistic deals, join Lorillard, O'Reilly; spreads 'gradually' firm

By Aleesia Forni and Andrea Heisinger

New York, Aug. 16 - Volume in the high-grade primary market showed no signs of slowing Thursday. Multi-part deals from Rio Tinto Finance (USA) plc and Burlington Northern Santa Fe, LLC were among the handful of deals.

Rio Tinto was in the market for the second time in 2012. It priced $3 billion of notes due 2017, 2022 and 2042.

Burlington Northern also priced its second deal of 2012 with its $1.25 billion sale of 10-year notes and 30-year bonds. Investor interest pushed the books to more than 3.5 times oversubscribed.

Cigarette maker Lorillard Tobacco Co. sold $500 million of five-year notes.

O'Reilly Automotive, Inc. priced $300 million of 10-year notes.

Volume in the preferred stock market continued to flow. Hatteras Financial Corp. announced the pricing of $250 million of $25-par preferreds.

The investment-grade bond primary, which has been bursting with issuance this week, is expected to see a break on Friday.

"I don't think there are any deals floating around, thank God," said one market source late in the day.

"I think we're all glad it will be quiet. There are already things on tap for Monday - two or three that we know of - and it should quiet down later next week."

The Markit CDX Series 18 North American Investment Grade index was 2 basis points tighter at a spread of 101 bps on Thursday.

Bank and financial paper ended the day unchanged to 2 bps tighter, a market source said.

All three tranches of Rio Tinto's $3 billion deal were tighter near the day's close, while Burlington Northern Santa Fe's new issues were unchanged to 2 bps tighter.

"It's been gradually tighter throughout the day," one trader said of Thursday's market, adding that spreads at the end of the session were "not dramatically better."

Rio Tinto prices $3 billion

Rio Tinto Finance sold $3 billion of bonds (A3/A-/) in three tranches, a market source said.

A $1.25 billion tranche of 1.625% five-year notes priced at a spread of Treasuries plus 93 bps. The bonds priced at the tight end of talk in the 95 bps area.

The $1 billion of 2.875% 10-year notes sold at a spread of Treasuries plus 120 bps. The tranche was sold at the low end of guidance in the 120 bps to 125 bps range.

A third part was $750 million of 4.125% 30-year bonds priced at 135 bps over Treasuries. The bonds sold at the tight end of talk in the range of 135 bps to 140 bps.

The five-year tranche was quoted at 89 bps bid, 85 bps offered, while the 10-year tranche was seen at 117 bps bid, 114 bps offered, a trader said.

The 30-year tranche traded at 129 bps bid, 126 bps offered near the end of the session.

The deal is guaranteed by Rio Tinto plc and Rio Tinto Ltd.

The bookrunners were HSBC Securities (USA) LLC, Morgan Stanley & Co. LLC and RBS Securities Inc.

Proceeds are being used for general corporate purposes including the repayment of $500 million of 4.875% notes due Sept. 15, 2012 issued by Alcan Inc. and to fund the previously announced acquisition of BHP Billiton's interest in Richards Bay Minerals, the completion of which remains subject to regulatory approval.

Rio Tinto, the mining company based in Melbourne, Australia, and London, last tapped the U.S. bond market with a $2.5 billion deal in four tranches on March 19. A 2% five-year note from that deal priced at 85 bps over Treasuries while a 3.5% 10-year note sold at 120 bps. A 4.75% 30-year bond was priced at 137.5 bps.

BNSF prices tight

Burlington Northern Santa Fe sold $1.25 billion of debentures (A3/BBB+/) in two maturities, a source close to the trade said.

There was about $4.4 billion on the books for the deal, and investor demand was "pretty evenly split across the tranches," the source said.

He also noted that the bonds were trading about 3 bps better in the secondary after the market close.

"It was a pretty opportunistic trade," the source said. "Rail always has funding needs; they have capex needs."

The $600 million of 3.05% 10-year notes priced at a spread of Treasuries plus 125 bps. The tranche was sold at the tight end of guidance in the 130 bps area.

A $650 million tranche of 4.375% 30-year bonds sold at 150 bps over Treasuries. The bonds were priced at the low end of talk in the 155 bps area.

One trader saw the 10-year notes 2 bps tighter at 123 bps bid, 120 bps offered and the 30-year bonds unchanged at 150 bps bid, 147 bps offered.

Bank of America Merrill Lynch, Citigroup Global Markets Inc. and Goldman Sachs & Co. were the bookrunners.

Proceeds are being used for general corporate purposes.

Burlington Northern was last in the market with a $1.25 billion offering in two tranches on Feb. 28. The 3.05% 10-year notes from that deal were priced at 115 bps over Treasuries, and a 4.4% 30-year bond sold at 137.5 bps over Treasuries.

The holding company for railroad transportation subsidiaries is based in Fort Worth.

Lorillard's five-year

Lorillard Tobacco sold $500 million of 2.3% five-year senior notes (Baa2/BBB-/BBB) to yield Treasuries plus 150 bps, a market source said.

Barclays, J.P. Morgan Securities LLC and RBS were active bookrunners.

Proceeds are being added to the company's general funds to be used for general corporate purposes.

"With today's announced offering, we are pleased to take another significant step towards our objective of more effectively utilizing our balance sheet," David H. Taylor, executive vice president, finance and planning, and chief financial officer of Lorillard said in a press release early Thursday.

Taylor also announced a change to Lorillard's long-term leverage ratio target from 1.5 times gross debt to EBITDA to a range of 1.5 times up to 2.0 times gross debt to EBITDA.

"The increased leverage ratio target, which we would expect to reach over time, reflects our ongoing confidence in Lorillard's business and its strategic direction along with our continued commitment to stakeholders to most efficiently manage the company's financial resources while retaining a strong balance sheet that protects our investment-grade ratings," Taylor said in the release.

The deal is guaranteed by Lorillard, Inc.

Lorillard Tobacco was last in the bond market with a $750 million deal in two tranches on Aug. 1, 2011. A 3.5% five-year note from that offering was priced at 225 bps over Treasuries.

The cigarette maker is based in Greensboro, N.C.

O'Reilly sells $300 million

O'Reilly Automotive priced $300 million of 3.8% 10-year senior notes (Baa3/BBB/) at a spread of Treasuries plus 200 bps, a source away from the deal said.

JPMorgan and U.S. Bancorp Investments Inc. ran the books.

Proceeds are being used for general corporate purposes.

O'Reilly was last in the bond market with a $300 million issue of 4.63% 10-year notes priced at 262.5 bps over Treasuries on Sept. 14, 2011.

The auto parts retailer is based in Springfield, Mo.

Hatteras prices preferreds

Hatteras Financial priced $250 million of 7.625% series A cumulative redeemable perpetual preferred stock, according to a press release.

Price talk was initially 7.75%, a trader said, but was revised to 7.625%.

There is a $37.5 million over-allotment option.

Hatteras is applying to list the new preferreds on the New York Stock Exchange under the ticker symbol "HTSPA."

Wells Fargo Securities LLC, Citigroup, UBS Securities LLC and Bank of America Merrill Lynch were the bookrunners.

Proceeds will be used to buy short-term agency securities and for general corporate purposes, including the repayment of outstanding debt, the purchase of hedging instruments and other general purposes.

Hatteras is based in Winston-Salem, N.C.

Stephanie N. Rotondo contributed to this review

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