RJR Nabisco Inc. priced a $1 billion debt offering yesterday, one day after its parent company completed a $1.25 billion preferred stock deal.
"The rate environment is pretty favorable right now," Jason Wright, an RJR Nabisco spokeswoman, said.
Asked about some buyside sources' comments that the deal was priced at a wide spread to Treasuries, Wright said, "We are very pleased with the deal and the pricing." The offering was well received by the market, he said.
Yesterday's offering gives RJR Nabisco added flexibility to refinance more of its higher cost debt, Wright said.
The first part of RJR Nabisco's two-part offering consisted of $500 million of 8.750% notes due 2005. The noncallable notes were priced at 99.705 to yield 8.790% or 305 basis points more than comparable Treasuries.
The second tranche consisted of $500 million of 9.250% notes due 2013. The noncallable notes were priced at 99.907 to yield 9.260% or 290 basis points over the when-issued 30-year Treasury. Moody's rates the offering Baa3, while Standard & Poor's rates it BBB-minus. Lehman Brothers was lead manager.
"For a triple-B credit that's really wide," one market source said of the pricing. "I'm just avoiding the credit, I'm not surprised it came this wide," he said.
Another buyside source agreed the deal offered a fairly wide spread. While he liked it, the source said he passed because he already holds enough RJR Nabisco paper.
"I thought it was priced to go, but it didn't go, though," he said. Bringing the deal right behind the preferred offering made for a lot of supply in the market, the buyer said.
An analyst who follows RJR Nabisco said intensifying competition in the U.S. tobacco markets is causing some concern over the company's operating income and cash flow levels. She also cited the threat of a federal excise tax to help fund health care reform.
Overall in the high-grade market, robust issuance is likely to remain the theme, syndicate and analyst sources said.
"It's likely to be busy," one syndicate desk member said concerning next week. He declined to name specific offerings.
In the high-yield market, several deals are on deck for next week.
TransTexas Gas is expected to sell $460 million of senior secured notes due 2000 through Jefferies & Co. Tracor Inc. is expected to offer $100 million of senior subordinated notes due 2001 through sole manager BT Securities Corp.
In addition, International Semi-Tech Microelectronics Inc. is expected to offer a senior secured discount note offering with the proceeds of $300 million through sole manager Kidder, Peabody & Co. The offering is expected to be rated Ba2 by Moody's and B-plus by Standard & Poor's. The deal is being done concurrent with an equity offering.
In secondary trading, spreads on high-grade issues, which lately have been on a tightening trend, ended unchanged. High-yield bonds also finished unchanged.
Texaco Capital Inc. issued $200 million of 6.875% debentures due 2023. Noncallable for 10 years, the debentures were priced at 97.342 to yield 7.09% or 77 basis points more than when-issued 30-year Treasuries. The offering is expected to be rated A1 by Moody's Investors Service Inc. and A-plus by Standard & Poor's Corp. First Boston Corp. was lead manager of the offering.
Mead Corp. sold $150 million of 7 1/8% debentures due 2025. Noncallable for 10 years, the debentures were priced at 98.876 to yield 7.215% or 90 basis points more than when-issued 30-year Treasuries. Smith Barney Shearson was lead manager.
Federal Home Loan Banks issued $107 million of 5.235% debentures due 1998 at par. Noncallable for two years, the debentures were priced to yield 14 basis points more than comparable Treasuries. Nationsbanc Capital Markets Inc. served as lead manager of the offering.
Federal Farm Credit Bank issued $100 million of floating rate notes due Aug. 19, 1994. The noncallable notes float daily at 277 basis points below the prime rate and pay interest quarterly. Lehman Brothers managed the offering.
Noranda Inc. issued $100 million of floating rate notes due 2000. They were priced at par to yield 5% initially, and the coupon cannot drop below 5%. The yield on the noncallable notes floats quarterly at 75 basis points above the three-month Libor and interest is paid quarterly. Moody's rates the offering Baa2, while Standard & Poor's rates it BBB-minus. UBS Securities acted as sole manager of the offering.