Reynolds American does $9 billion megadeal; Verizon, AT&T wider; Barclays soft

By Aleesia Forni and Cristal Cody

Virginia Beach, June 9 – Reynolds American Inc. priced a $9 billion bond offering to help finance a planned acquisition amidst a continued volatile market backdrop on Tuesday.

The six-tranche new deal priced between 10 basis points to 45 bps tight of initial price thoughts.

The issue also attracted a strong book despite the weaker market conditions with more than $35 billion of orders piling in, a market source said, adding that demand was skewed towards the 30-year tranche.

The new issue joins the flurry of acquisition financings the investment-grade primary has hosted so far this year and comes on the heels of Exelon Corp.’s $4.2 billion deal priced on Monday to fund its Pepco Holdings, Inc. merger.

Reynolds’ jumbo offering was joined on Tuesday by energy and utility companies Dominion Resources Inc., Southern Co., DTE Energy Co. and Pacific Gas & Electric Co.

Also on Tuesday, KfW sold $4 billion of global notes, while Inter-American Development Bank sold a $2.25 billion five-year issue.

Details of IADB’s sale were unavailable at press time.

Germany’s Erste Abwicklungsanstalt joined the forward calendar on Tuesday, announcing price talk for a planned two-year notes offering.

Already the week has hosted roughly $22.7 billion of new high-grade paper, closing in on what was predicted to be around a $25 billion to $30 billion week.

Investment-grade corporate bonds traded mostly flat to weaker over the session, while credit spreads edged tighter, sources said.

The Markit CDX North American Investment Grade series 23 index was less than ½ bp tighter at a spread of 68 bps.

Bonds from Verizon Communications Inc., which plans to acquire AOL Inc. for $4.4 billion, traded weaker over the day.

AT&T Inc.’s bonds (/BBB+/A-) headed out mostly softer.

Barclays plc’s 2.875% senior notes due 2020 eased 3 bps in the secondary market.

Citigroup Inc.’s 3.3% senior notes due 2025 were unchanged on the bid side.

Goldman Sachs Group Inc.’s 3.5% notes due 2025 were flat.

Reynolds jumbo deal

Reynolds American was in the market with a $9 billion six-tranche offering of senior notes (Baa3/BBB-) on Tuesday in order to fund its acquisition of Lorillard Inc., according to a syndicate source.

A $1.25 billion tranche of 2.3% three-year notes priced at 99.983 to yield 2.306%, or Treasuries plus 120 bps.

The notes sold at the tight end of revised guidance set in the Treasuries plus 125 bps area, which had firmed from initial talk in the Treasuries plus 165 bps area.

A $1.25 billion 3.25% five-year note sold with a spread of Treasuries plus 150 bps. Pricing was at 99.982 to yield 3.254%.

The tranche sold at the tight end of the Treasuries plus 155 bps area guidance after having tightened from initial talk set in the Treasuries plus 185 bps area.

There was $1 billion of 4% seven-year notes priced at 99.861 to yield 4.023% with a spread of Treasuries plus 185 bps.

The notes were guided in the Treasuries plus 190 bps area. Initial talk was set in the Treasuries plus 205 bps area.

A $2.5 billion tranche of 4.45% 10-year notes sold at 99.697 to yield 4.488%. The notes priced at Treasuries plus 205 bps, at the tight end of talk set in the Treasuries plus 210 bps area. Initial price thoughts were in the Treasuries plus 225 bps area.

The company also priced $750 million of 5.7% 20-year bonds at 99.558 to yield 5.738%, or Treasuries plus 255 bps.

Price guidance was in the Treasuries plus 260 bps area after having tightened from the Treasuries plus 280 bps to 285 bps range.

Finally, $2.25 billion of 5.85% 30-year bonds sold at 99.476 to yield 5.888%, or Treasuries plus 270 bps.

The bonds sold at the tight end of the Treasuries plus 275 bps area revised guidance. Initial talk was set in the 280 bps area over Treasuries.

A planned three-year floating-rate tranche was dropped prior to the deal’s launch.

Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Credit Suisse Securities (USA) LLC, Fifth Third Securities, Goldman Sachs & Co., Mizuho Securities, RBC Capital Markets LLC and Scotia Capital (USA) Inc. were the bookrunners.

Reynolds American is a Winston-Salem, N.C.-based manufacturer and seller of cigarettes and other tobacco products.

KfW global notes

KfW priced on Tuesday a $4 billion issue of 1.875% five-year global notes (Aaa/AAA/AAA) in line with talk at mid-swaps plus 3 bps, according to a market source and an FWP filed with the Securities and Exchange Commission.

Pricing was at 99.856.

The bookrunners are Goldman Sachs, JPMorgan and TD Securities.

The German government-owned development bank is based in Frankfurt.

Southern Co. offering

Southern priced $600 million of 2.75% five-year series 2015A senior notes (Baa1/A-/A) on Tuesday at Treasuries plus 105 bps, according to an FWP filed with the SEC.

Pricing was at 99.828 to yield 2.787%.

The notes sold at the wide end of talk set in the Treasuries plus 100 bps to 105 bps range.

BNP Paribas Securities Corp., Goldman Sachs, JPMorgan, U.S. Bancorp Investments Inc. and Wells Fargo Securities LLC are the joint bookrunners.

Proceeds will be used to pay a portion of the company’s outstanding short-term debt and for other general corporate purposes.

The utility company is based in Atlanta.

PG&E new, reopened tranches

Pacific Gas & Electric sold $500 million of senior notes (A3/BBB+/A-) in two parts on Tuesday, according to a market source and a filing with the SEC.

A $400 million tranche of 3.5% notes due June 15, 2025 sold at 99.365 to yield 3.576%, or Treasuries plus 115 bps.

The company also priced a $100 million add-on to its existing 4.3% notes at 94.769 to yield 3.576%, or Treasuries plus 145 bps.

The original $500 million issue priced at Treasuries plus 130 bps on Nov. 3, 2014.

Citigroup Global Markets, JPMorgan, Mizuho Securities and Loop Capital Markets were the joint bookrunners.

Proceeds will be used for general corporate purposes, including the repayment of commercial paper.

The electric and natural gas utility is based in San Francisco.

Dominion three-year notes

Also on Tuesday, Dominion Resources priced $500 million of 1.9% 2015 series A three-year senior notes (Baa2/BBB+/BBB+) at Treasuries plus 82 bps, according to a market source and an FWP filed with the SEC.

Pricing was at 99.965 to yield 1.912%.

Deutsche Bank Securities Inc., RBC Capital Markets and Scotia Capital are the joint bookrunners.

Proceeds will be used for general corporate purposes and to repay short-term debt, including commercial paper.

The energy producer and transporter is based in Richmond, Va.

DTE Energy prices tight

DTE Energy priced $300 million of 3.3% seven-year senior notes with a spread of Treasuries plus 115 bps, according to an informed source.

The notes (A3/BBB/BBB) sold at the tight end of price talk.

JPMorgan, TD Securities and UBS Securities LLC were the bookrunners.

Proceeds will be used to repay short-term borrowings and for general corporate purposes.

DTE is a Detroit-based utility involved in the development and management of energy-related businesses and services nationwide.

EAA sets talk

Germany’s Erste Abwicklungsanstalt set price guidance on Tuesday for a planned offering of two-year notes in the mid-swaps plus 8 bps area, according to a market source.

Barclays, BofA Merrill Lynch, Daiwa Securities and HSBC Securities are the joint bookrunners.

The public law agency is charged with winding up portfolios transferred to it and is based in Dusseldorf.

Verizon wider

Verizon’s 3.5% notes due 2024 eased 2 bps to 148 bps bid, a market source said.

The company sold $2.5 billion of the notes (Baa1/BBB+/A-) on Oct. 22, 2014 at Treasuries plus 135 bps.

The telecommunications company is based in New York City.

AT&T eases

AT&T’s 3.4% notes due 2025 eased 2 bps to 164 bps bid, a market source said.

The company sold $5 billion of the notes on April 23 at a spread of Treasuries plus 150 bps.

AT&T’s 4.75% bonds due 2046 traded flat to 1 bp softer at 216 bps bid.

AT&T sold $3.5 billion of the bonds in the April 23 offering at Treasuries plus 215 bps.

The telecommunications company is based in Dallas.

Barclays soft

Barclays’ 2.875% notes due 2020 eased 3 bps on Tuesday to 138 bps bid, a market source said.

Barclays sold $1 billion of the notes (Baa3/BBB/A) on June 1 at Treasuries plus 142 bps.

The financial services company is based in London.

Citigroup unchanged

Citigroup’s 3.3% senior notes due 2025 traded flat at 138 bps bid, according to a market source.

Citigroup sold $1.5 billion of the notes (Baa2/A-/A) on April 22 at Treasuries plus 135 bps.

The investment bank is based in New York.

Goldman stable

Goldman Sachs’ 3.5% notes due 2025 were unchanged at 149 bps bid, a market source said.

Goldman priced an $800 million add-on to the notes (Baa1/A-/A) on March 25 at Treasuries plus 145 bps.

The issue originally priced on Jan. 20 in a $1.7 billion offering at Treasuries plus 170 bps.

The financial services company is based in New York City.

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