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Reynolds American Inc. Message Board

  • ac_loa ac_loa Oct 25, 2012 11:23 PM Flag

    RAI bond auction was successful in BOTH the primary and secindary markets

    perhaps accounting for today nice bounce :--)))
    High-Grade-Bond Market Absorbs $3.9 Billion of New Deals

    Oct 25, 2012 18:01:24 (ET)

    By Patrick McGee

    The corporate-bond market has faltered somewhat this week amid weak earnings, but conditions were strong enough Thursday to support a combined $3.9 billion of new deals from five high-grade issuers.

    Two jumbo-size deals led the spurt of issuance: Nonprofit health provider Catholic Health Initiatives sold $1.5 billion in a three-part deal, and the Royal Bank of Canada (RY) priced $1 billion of three-year notes at the second-lowest fixed rate on record for a bank for that maturity.

    The five deals pushed weekly issuance to $12.4 billion, compared with the $28.5 billion sold last week, according to preliminary data from Dealogic.

    Issuance has been slow this week while the credit rally pauses, but "demand for new issue remained strong," according to researchers at Bank of America Merrill Lynch.

    Borrowers often pay investors a "concession" of extra yield on new deals to entice buyers into the primary market, and concessions can rise when investors are shunning riskier assets. But new deals this week are yielding 0.12 percentage point less than comparable debt in the secondary market, on average, according to BofA data released Thursday.

    Last week, deals offered 0.07 point more.

    The negative concessions suggest appetite for new deals is ravenous despite mixed trading in the secondary market. New deals are usually the most easily tradeable, particularly for large volumes; because secondary markets are relatively illiquid, investors are sometimes willing to accept lower yields on new offerings.

    Admittedly, the average is skewed by Wednesday's $2.55 billion deal from Reynolds American Inc. (RAI), a tobacco company. It paid a negative concession of 0.30 percentage point on the 10- and 30-year portions of Wednesday's deal--its first U.S. debt offering in five years.

    Reynolds's spreads continued to ratchet down in secondary trading Thursday. The 10-year bonds, issued at a spread of 1.50 percentage points, improved to 1.40 points; the 30-year bonds, issued at a 1.90-point spread, now trade at 1.77 points, according to MarketAxess.

    The improvement was part of a broader recovery in credit markets Thursday, helping to enable borrowers to find investors eager to snap up bonds.

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