US CORP BOND WRAP-High grade nears quarter record after BAT bond

By Davide Scigliuzzo

NEW YORK, June 10 (IFR) - British American Tobacco (LSE: BATS.L - news) and tech giant Cisco helped quash any concerns about the fragility of the US investment-grade bond market on Wednesday after they raised a combined US$9.5bn with minimal new issue concessions.

Both issuers targeted maturities of 10-years and under - avoiding the kind of double-digit premiums that Reynolds American had to pay on long-dated bonds a day earlier.

With today's issuance, which also includes a US$1.16bn project bond for the construction of the Lima metro, the US investment-grade bond market is just over US$34bn shy of setting a new record for quarterly supply, according to IFR data.

British American Tobacco raised US$4.5bn through a new five-part bond that saw around US$14bn in orders from investors despite offering little to no concession over the company's existing curve.

As the yield on 10-year US Treasuries touched a new eight-month high, the company began marketing the new issue with an initial concession of 25bp over its own outstanding bonds.

That was a far cry from the 50bp-60bp pick-up initially offered by Reynolds American (NYSE: RAI - news) on the long-dated tranches of its US$9bn bond sale the day before, which had tightened by as much as 20bp in secondary on Wednesday morning.

"We were surprised (BAT) didn't start wider," said one banker of the initial price thoughts. "They managed to tighten because of the outperformance of Reynolds."

Nearly all of the initial concession was wiped out by launch, with pricing on three-, five- and seven-year notes coming in by 25bp and the 10-year note ending 20bp tighter compared to initial talk.

BAT also managed to price a three-year FRN, while Reynolds dropped a similar tranche while pricing its US$9bn trade on Tuesday.

Cisco, rated A1/AA-, raised US$5bn from a five-part trade that will partly finance share buybacks and dividends under its capital return program.

After pulling in guidance by 10bp on the three- and five-year tranches and 18bp and 20bp on the seven and 10-year portions, the California-based tech company looks to be paying new issue concessions of around 5bp on all tranches. It saw a book of US$12.1bn.

"The 30bp of concession (based on initial talk) is more than we anticipated," CreditSights said in a note.

Primary activity in the high-yield market remained subdued on Wednesday, with a US$230m eight-year non-call three senior note for Carmike Cinemas (NasdaqGS: CKEC - news) the only deal pricing.

Packaging company Sealed Air, which is expected to bring to market the largest high-yield issue this week, has announced price talk on its dual-currency issue.

Talk on the US dollar-denominated 10-year tranche is 5.625%-5.75%, and 4.75% area (+/-12.5bp) on the eight-year euro tranche. (Reporting by Davide Scigliuzzo; Editing by Natalie Harrison)