Altria prices upsized $6 billion, reopens BBB market; Verizon up again, Baker Hughes claims

By Andrea Heisinger and Paul Deckelman

New York, Nov. 5 - In the largest new issue in months, Altria Group, Inc. priced a $6 billion three-tranche issue Wednesday.

Sources said they hoped the issue and its success would further crack open the backlog of issues that's been building as financial woes wore on.

In the investment-grade secondary market Wednesday, advancing issues again led decliners by a better-than two-to-one margin. Overall market activity, reflected in dollar volumes, was down 9% from Tuesday's pace.

Spreads in general were seen slightly wider, in line with marginally lower Treasury yields; for instance, the yield on the benchmark 10-year note eased by 2 basis points to 3.70%.

Traders said that the huge new Altria three-part deal came way too late in the session for any kind of aftermarket dealings.

There was, however, brisk activity among such recently priced issues as Verizon Communications Inc., Baker Hughes Inc. and PepsiCo. Inc. Verizon and Baker Hughes both better on the day.

Altria does $6 billion

The upsized issue from the holding company for cigarette and tobacco makers surprised some with its size. The deal was done to help fund the acquisition of smokeless tobacco and wine maker UST Inc.

It was originally planned as two tranches of five and 10-year notes.

In the end, it turned into a $6 billion issue of five-, 10- and 30-year bonds.

The $1.4 billion of 8.5% five-year notes priced at 99.952 to yield 8.512% with a spread of Treasuries plus 600 basis points.

The $3.1 billion of 9.7% 10-year notes priced at 99.931 to yield 9.711% with a spread of Treasuries plus 600 bps.

The $1.5 billion of 9.95% 30-year notes priced at 99.709 to yield 10.196% with a spread of Treasuries plus 600 bps.

Citigroup Global Markets Inc., Goldman Sachs & Co., and J.P. Morgan Securities Inc. ran the books.

Market reopens for BBB names

The last time an issue as large as the one from Altria was priced was well before the pinnacle of the financial meltdown in the last couple of months.

That deal was from higher-rated drug company GlaxoSmithKline plc, which brought $9 billion of notes on May 6. That deal had also taken some on syndicate desks by surprise as it was done in the middle of a negative market tone.

The success of the Altria deal was good news for the investment-grade primary for a couple of reasons, sources said.

It will further unfreeze the backlog of issues, and hopefully allow more lower-rated names back into the market.

"There was huge interest in this," a source close to the deal said. "It was nearing $14 billion in the book."

Much of the interest was in the 10-year notes, he added, which accounted for the largest chunk of the book and also the biggest tranche of the deal.

The 30-year notes were added after investor interest was gauged and there was sufficient support to tack on the tranche, he said.

The issue was a "long one," a source said, as it was announced in the morning but did not price until well after 5 p.m. ET.

"We literally worked on it all day," he said. "I had my head buried in it, and was pretty unaware of anything else going on."

There was a lack of competition for investor attention, as the Altria deal was reportedly the only new issue in the market.

Some more rough economic news came out Wednesday and brought the stock market back down after Tuesday's election-day rally.

The same was not true in the investment-grade primary, a source said.

"I don't think it really mattered," he said. "Obviously if this deal got done, the market wasn't too scared."

A source close to the deal said he was unsure how long the company has been looking at the market, but that it was likely only since Altria agreed the UST acquisition. That transaction was announced on Sept. 8.

A recent string of successful and well-received issues, such as Tuesday's $3 billion sale from BP Capital Markets plc, also gave the company encouragement.

"The window of opportunity was there," a source said. "Yesterday was a really good day."

This issue, as well as the low-A rated passthroughs priced Monday by GATX Corp., should ease the BBB rated names back into the market, he said.

"This is great news," he said of Altria's successful deal.

Verizon keeps gaining

Verizon Communications' two tranches of new bonds were seen actively trading around. A market source saw its 8.95% bonds due 2039 trading at a spread over comparable Treasury issues of 384 bps, well in from the 487.5 bps level at which the New York-based telecommunications giant had priced the $1.25 billion of those bonds a week ago.

The source also pegged its $2 billion of 8 ¾% notes due 2018 at 406 bps over, also down from 487.5 bps at pricing.

The two issues were among the most actively traded names Wednesday, with over $75 million of each changing hands.

Traders have noted that Verizon was one of a number of recently priced deals which shot upward, and their spreads downward - right after pricing and then continued to improve - a sign, they surmised, that the deals had been priced too cheaply to begin with in an effort to just get the deal done and financing arranged in the current troubled market environment.

Baker Hughes bonds tighten

Another such deal was Baker Hughes' 7.50% notes due 2018, which priced on Oct. 23 at 400 bps over. The Houston-based oilfield services company's $750 million of new bonds were seen on Wednesday at 325 bps over.

However, the market source did not have a level on the $500 million of 6.50% notes due 2013, which also priced at 400 bps over Treasuries on Oct. 23.

And PepsiCo's 7.90% notes due 2018 were quoted Wednesday at 293 bps over - wider than the 268 bps level seen in Tuesday's market, but still solidly tighter versus the 420 bps level at which Purchase, N.Y.-based soft drink and snack foods maker's $2 billion of bonds priced on Oct. 21.

Outstanding Verizon bonds wider

While the new Verizon bonds have continued to tighten, a market source said that the company's 6.50% notes due 2011 were seen having widened out to about the 575 bps level, 30 bps out on the session.

Daimler drives upward

One of the gainers among the established issues was Daimler Chrysler North American Holding Co., whose 5.75% notes due 2011 tightened by 50 bps Wednesday to around the 1060 bps area.

Its 7.20% notes coming due next Sept. 1 also tightened, to around the 965 bps area.

Bank of America better

Among the financials, Bank of America's 5.42% notes due 2017 were quoted having come in by some 35 bps to 500 bps over.

Debt-protection costs mixed

In the credit-default swaps market Wednesday, a trader saw the debt-protection costs for bonds issued by major banks 5 bps to 7 bps wider.

He also saw CDS costs for big-brokerage paper 10 bps tighter on the day.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.