By Patrick McGee
Four highly rated companies sold a combined $5.05 billion worth
of bonds Wednesday as the marketplace appeared to stabilize
following a risk-asset selloff Tuesday.
Corporate bond issuance is usually quiet on days when the
Federal Reserve releases its monetary policy statement. But
Tuesday's tough climate prevented issuers from testing the markets,
so when conditions appeared a little upbeat Wednesday morning,
underwriters who arrange the deals sensed an open window for a few
select deals.
"They had the market to themselves," said Ryan Newth, director
of corporate syndicate at SunTrust Robinson Humphrey.
Leading the new-issue market were jumbo-size deals from tobacco
company Reynolds American Inc. (RAI) and Marathon Oil Corp.
(MRO).
Reynolds sold a $2.55 billion deal in the tobacco company's
first U.S. debt offering in five years. The three-part deal comes a
day after it said profit jumped 6.6% last quarter despite a drop in
cigarette volume.
Reynolds sold three-year, 10-year and 30-year bonds priced to
yield 1.098%, 3.266% and 4.807%, respectively. When it last sold
10-year and 30-year bonds in June 2007, it paid fixed rates of
6.75% and 7.25%, according to data provider Dealogic.
Marathon sold $2 billion of debt in its first U.S. offering
since 2009. The deal was evenly split between three-year bonds
priced to yield 0.904% and 10-year bonds priced to yield 2.828%.
Compared with Treasurys, the bonds offered risk premiums of 0.50
percentage point and 1.05 percentage points, respectively.
Mr. Newth said high-quality issuers are doing what they can to
sell bonds ahead of the presidential elections and the
Congressional showdown on the deficit and taxes. Weak third-quarter
earnings, too, are forcing issuers to be cognizant of a potential
downturn in financial markets.
"I get the sense we'll see more heightened volatility like we
saw Monday and Tuesday," he said. "[So] people are being
opportunistic."
Average yields in the broader high-grade market ticked up this
week as investors sold bonds, but borrowing costs remain near
all-time lows. The Barclays U.S. corporate investment-grade index
is at 2.71%, or 1.37 percentage points above comparable Treasurys.
A five-year low of 1.31 points was reached last Friday.
Among smaller deals, food producer Cargill Inc. (CRG.XX) sold
$450 million of 30-year debt at a yield of 4.111%, and American
bank BB&T Corp. priced $450 million of perpetual shares
yielding 5.20%.
Write to Patrick McGee at patrick.mcgee@dowjones.com
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