British American Tobacco launches US$4.5bn bond issue

(Adds launch details)

By Davide Scigliuzzo

NEW YORK, June 10 (IFR) - British American Tobacco (LSE: BATS.L - news) is set to

raise US$4.5bn through a new five-part bond on Wednesday 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.

Also of note was that BAT is set to price a three-year FRN

while Reynolds dropped a similar tranche while pricing its

US$9bn trade on Tuesday.

Pent-up demand from Reynolds' trade on Tuesday may also have

helped generate momentum for BAT's deal.

"Guys who didn't get allocated yesterday managed to get

exposure to the (tobacco) sector, and with a better rated name,"

said the banker.

BAT, the world's second-largest international tobacco

company, is rated A3/A-/A-, while Reynolds is rated Baa3/BBB-.

It was downgraded by Moody's in the midst of its deal execution

on Tuesday.

BAT is raising the funds so that it can maintain a 42% stake

in US-based Reynolds American after that company completes its

US$27.4bn acquisition of Lorillard (NYSE: LO - news) .

Active bookrunners Deutsche Bank (Xetra: 514000 - news) , Citi, HSBC and JP Morgan

plan to price the bond later on Wednesday.

Following are details on each tranche:

MATURITY IPTs GUIDANCE LAUNCH

3-yr FXD T+100bp area T+80bp area US$750m at T+75bp

3-yr FRN Libor equiv. Libor equiv US$500m at L+51bp

5-yr T+125bp area T+105bp area US$1.25bn at T+100bp

7-yr T+155bp area T+135bp area US$500m at T+130bp

10-yr T+170bp area T+155bp area US$1.5bn at T+150bp

(Reporting by Davide Scigliuzzo; Editing by Natalie Harrison

and Shankar Ramakrishnan)