Lorillard sells to intense investor interest; issuers await debt ceiling vote; JPMorgan firms

By Andrea Heisinger and Cristal Cody

New York, Aug. 1 - There was a lone high-grade sale on Monday from Lorillard Tobacco Co. as others in the bond market eyed progress on the debt ceiling bill working its way through the Senate.

Lorillard sold its first bonds since early 2010 with a $750 million deal in two tranches. There was initially a single tranche of five-year notes, and a 30-year bond was added on demand. Each of the notes priced at the tight end of guidance.

The sale went "stupendously well" and was several times oversubscribed, a source close to the offering said.

The five-year notes were six to seven times oversubscribed while the 30-year bonds were five times oversubscribed.

Issuers are eying the market for Tuesday based on the success of the Lorillard sale and how much interest there was even after pricing was ratcheted in from talk, a market source said.

"There are a few others interested in coming, but they're going to wait and see," a source noted.

Potential issuers were waiting for the outcome of the debt ceiling vote that was pushed to sometime on Tuesday ahead of the default deadline.

"If it looks good early enough, we could see some action," the source said.

In the secondary market, Lorillard Tobacco's new short-dated notes and long bonds tightened as much as 12 basis points, according to traders.

Trading was slow on Monday as the debt ceiling situation kept investors on the sidelines. Overall trading volume fell 15% to less than $9 billion.

"When we walked in the door this morning, [overall bonds] were maybe 2 to 5 basis points tighter," a trader said. "We're going out unchanged on the day."

The Markit CDX Series 15 North American investment-grade index was unchanged for a fourth straight market session on Monday at a spread of 96 bps, according to Markit Group Ltd.

Telecommunication bonds traded on Monday flat to modestly weaker.

"Financials are still better on the day by probably 2 to 5 bps," a trader said.

JPMorgan Chase & Co.'s five-year notes that it reopened on Friday traded about 6 bps tighter from the issue price.

Nokia Corp.'s bonds quieted down in secondary trading after widening 20 bps the previous week on a downgrade from Moody's Investor Services.

Kraft Foods Inc.'s 6.5% senior notes due 2040 picked up activity as the company's earnings report date approaches later in the week.

One high-yield trader said on Monday that many investment-grade accounts are trading the new bonds from Ford Credit and HCA. "[It] all seems to be investment-grade accounts," he said.

Treasuries were mixed, with the long end closing the day on gains. The benchmark 10-year Treasury note yield fell 5 bps to 2.75%. The 30-year bond yield dropped to 4.08% from 4.12%.

Lorillard adds bonds

Lorillard Tobacco sold $750 million of senior notes (Baa2/BBB-) in two parts after a long bond was added prior to the launch, an informed source said.

The sale was initially only five-year notes, and a 30-year bond was later added due to investor demand.

That original $500 million of 3.5% five-year notes was priced at a spread of Treasuries plus 225 bps.

The notes were sold at the tightest end of initial guidance in the range of 237 to 250 bps and revised guidance at 225 to 237.5 bps.

A $250 million tranche of 7% 30-year bonds priced at Treasuries plus 300 bps.

Price guidance 300 to 312.5 bps and the notes priced at the tight end of that range.

"We went out with reverse inquiry and got enough interest," the source said, referring to the decision to add the 30-year bonds.

Active bookrunners were Barclays Capital Inc., Goldman Sachs & Co. and Wells Fargo Securities LLC.

The deal is guaranteed by Lorillard, Inc.

Proceeds are being added to the company's general funds and used for general corporate purposes, including the repurchase, redemption or retirement of securities, including common stock. They may also be used for acquisitions, additions to working capital and for capital expenditures.

Lorillard last sold bonds in a $1 billion offering in two parts on April 7, 2010. The 8.125% bonds due 2040 from that sale were priced at 340 bps over Treasuries.

In secondary trading, the new tranches steadily firmed toward the market close, several traders said.

The notes due 2016 traded soon after pricing at 215 bps bid, 212 bps offered, then out slightly to 217 bps bid, 211 bps offered before going out at 213 bps bid, 211 bps offered.

The bonds due 2041 narrowed after pricing to 287 bps bid, 284 bps offered. The notes widened a bit going out at 290 bps bid, 285 bps offered and were last seen at 289, 283.

The tobacco company is based in Greensboro, N.C.

JPMorgan firms

The 3.15% notes due 2016 that JPMorgan Chase reopened in an $855 million add-on on Friday continued to firm in the secondary market, a trader said Monday.

The notes (Aa3/A+/AA-) tightened to 154 bps bid, 151 bps offered, firmer from the issue price of 160 bps over Treasuries.

"They're 2 basis points better; they had closed better on the day on Friday," the trader said.

The financial services company is based in New York City.

Nokia unchanged

Nokia's bonds were flat in trading on Monday, staying mostly unchanged at 290 bps bid, 280 bps offered, a trader said.

The company's 5.375% notes due 2019 closed 10 bps wider on Wednesday at 295 bps bid, 285 bps offered after Moody's dropped the company's credit ratings to Baa2 from A3.

The mobile phone manufacturer and internet services provider is based in Espoo, Finland.

Kraft active

Kraft Foods' 6.5% senior notes due 2040 traded early in the day on Monday in the 122 bps area and were quoted going out at 124 bps bid, 119 bps offered, bond sources said.

Kraft priced the notes at Treasuries plus 205 bps on Feb. 4, 2010.

The Northfield, Ill., food manufacturer reports second-quarter income on Thursday.

Paul Deckelman contributed to this review

© 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.