Record $4-Billion RJR Bond Offering a Sellout : Drexel Prices Issue for Quick Sale, Allaying Fears It Would Swamp Market

Drexel Burnham Lambert said Thursday that it has found buyers for all of its record $4-billion offering of RJR Nabisco bonds, allaying fears that the issue would swamp the shaky market for “junk bonds.”

Portfolio managers and bond analysts said Drexel made the yields attractive enough to leave little doubt that they would find buyers. Drexel “priced it aggressively to get it done,” said Tom Razukas, a high-yield bond analyst at McCarthy, Crisanti & Maffei, a New York bond research firm.

Some analysts contended also that the sale, to be completed today after approval from the Securities and Exchange Commission, bodes well for the market in high-risk, high-yield junk bonds. Investors have recently sought safer havens after growing disillusioned with these relatively risky investments because of concerns about rising interest rates and fears of a recession.

A source close to the transaction said the offering was oversubscribed.

The bond offering “was a $4-billion gorilla doing a cannonball into the swimming pool,” said Raymond Minella, co-head of merchant banking at Merrill Lynch Capital Markets, a co-manager of the deal.

Minella added that the successful sellout of the RJR offering should free up money for other junk bond offerings “that was waiting on the sidelines.”

The junk bonds are key to the financing of Kohlberg Kravis Roberts & Co.’s recent record $25-billion buyout of RJR Nabisco. KKR has also said it plans to sell substantial assets to help fund the deal, as is typical in such leveraged buyouts.

Some investment bankers and executives of portfolio management companies praised the bonds as attractively priced and well backed by RJR Nabisco’s assets and cash flow.

“We’re buying it in pretty good size for our clients,” said Gerald B. Unterman, president of Solomon Asset Management in New York. “In terms of fundamentals, it’s one of the better credits in the high-yield market.”

When companies price bonds, the goal generally is to come up with the lowest possible interest rate to keep down the costs of paying off debt holders.

Drexel set the senior bonds in the RJR offering at 13.125%, while subordinated portions were set at 13.5% and 15%.

Michael Tennenbaum, Bear, Stearns & Co.’s Los Angeles-based vice chairman of investment banking, said the deal will raise the overall standards for funding big buyouts. The RJR debt, he said, “was structured conservatively because people were worried about” successfully placing the bonds.

“This will clear out the pipeline now to get business back into a steady-flow state,” Tennenbaum added.

Times staff writer Scot J. Paltrow contributed to this story.