US CORP BOND WRAP-US high-grade market nears record for July

By Natalie Harrison and Davide Scigliuzzo

NEW YORK, July 15 (IFR) - Imperial Tobacco (LSE: IMT.L - news) and Wells Fargo raised a total US$10.5bn on Wednesday and proved issuance conditions were still very conducive for large jumbo high-grade trades despite volatility in broader markets.

Imperial's long-awaited US$4.5bn four-part issue, which will finance its purchase of cigarette brands from Reynolds American (NYSE: RAI - news) , was a huge hit with investors.

The deal, that comprised issuance of three-, five-, seven- and 10-year bonds, attracted orders of up to US$11bn which helped the company tighten spreads by up to 20bp from IPT levels.

Bankers said that investors liked the fact that the deal was structured in a way Imperial would step up the coupon by 125bp if Moody's or S&P downgrade it to below investment grade.

"It was a good selling point," said one banker.

Wells Fargo also ended up with order books of US$11bn on its US$6bn three-part deal that was also tightened by about 10bp in the end. Both trades paid about 10bp to 15bp in new issue concessions compared with outstandings, in line with the prevailing trend of double-digit concessions.

The fund raising was bigger than expected, with three market sources saying the size had originally been whispered at US$4bn.

The volumes raised today have pushed the week's tally to US$41bn and very near record levels for the month of July.

With two weeks left to go still, the market looks set to top syndicate forecasts of US$80bn-US$90bn for July.

A new record for July also looks like a sure bet, with just US$5.4bn more needed to beat the US$75.773bn previous record for the month set in 2013.

"The month got off to an uncertain start, but we've had three straight days of a constructive tone and we're starting to see more regular issues now," said one FIG syndicate banker.

Even Federal Reserve Chair Janet Yellen's semiannual testimony to Congress did little to shake the market, with some market participants now seeing a December rate hike as more likely than September.

"There always seems to be some kind of negative caveat, be that China or commodities or sovereign issues, for when the Fed will hike," said the banker.

Syndicates are now predicting a busy end to the month with more banks likely to move quickly after earnings to bring new deals. Bank of America reported today, and Citi and Goldman Sachs are both due tomorrow.

In the corporate sector, chipmaker Intel (Swiss: INTC.SW - news) could be one of the earliest movers as it needs to raise some US$10bn to pay for its acquisition of Altera (NasdaqGS: ALTR - news) . It reports after the close today.

Other recent M&A deals have seen a mixed performance in secondary. The US$15bn trade from CVS, which priced on Monday, is anywhere from 1-6bp tighter across the curve with the best performance seen on the longest dated 30-year which offered more in the way of concession.

TWO NAMES IN HIGH-YIELD

Gasoline distributor Sunoco took to the high-yield bond market on Wednesday as it raised US$600m, increased from US$500m, to finance the acquisition of convenience store business from its parent company Energy Transfer Partners.

Sunoco's five-year non-call two note will help finance its US$1.94bn cash-and-stock acquisition of the retail activities under the Stripes brand.

Price talk for the transaction was in the 5.375%-5.5% range, according to two buy-side sources, and it priced at par at the wide end of that range.

Sunoco plans to raise approximately US$970m through the sale of new common shares - most of which will be issued to ETP - and to borrow additional funds through its existing revolver to complete the acquisition.

Mid-stream energy company was the only other borrower in the high-yield market on Wednesday, with a US$300m tap of its 6.125 2022s that priced at 101.50 to yield 5.791%.

Meanwhile, a US$3.5bn bond deal backing Charter Communications' acquisition of Time Warner Cable (Xetra: T3W1.DE - news) has been pushed to next week, according to two buyside sources.

An uncertain market tone early in the week, following a showdown between Greece and its European creditors over the weekend, might have contributed to keep the company on the sidelines this week.

"Monday and Tuesday the market was focused on Greece and on Wednesday it was waiting for Fed (Chair Janet Yellen's) testimony," one of the two sources said. "Junk ETFs started getting cash inflows on Tuesday and Wednesday, helping to firm the market tone." (Reporting by Natalie Harrison and Davide Scigliuzzo; Editing by Shankar Ramakrishnan)