‘Junk Bond’ Issue by RJR Is Snapped Up : $4-Billion Sale Goes Better Than Expected

From Times Wire Services

RJR Nabisco Inc.'s $4-billion “junk bond” sale, the largest such public offering in history, sold out Friday as buyers snapped up securities that had been priced low enough to assure demand.

Registrations of the mammoth issue were also declared effective by the Securities and Exchange Commission, meaning the securities could be traded. “It seems that almost everyone wants a piece of the action,” said one junk bond trader, noting that the bonds had moved better than some had expected.

The registration was so large that it immediately doubled the underwriter Drexel Burnham Lambert’s share of the high-yield, high-risk junk bond market for the year. Drexel’s share jumped to 50.2% from 21.5%, according to Securities Data Co.

Nabisco, maker of Ritz crackers and Oreo cookies, went private last year in a record $24.7-billion leveraged buyout. The company, bought by LBO specialists Kohlberg Kravis Roberts & Co., is now working to pay back the $23 billion it borrowed for the deal.


The five tranches, or installments, in the offering were selling at near the bonds’ par value, or higher, traders said, reflecting the strength of demand. Typical buyers in such offerings are thrifts, insurance firms, high-yield funds and money managers.

The Friday offering is part of an $8-billion securities package. Analysts and traders said the bond sale will probably be considered a benchmark in the nearly $190-billion junk bond market.

Solid Credit Risk

Drexel, lead manager of the offering, priced RJR Nabisco’s offering late Thursday. Merrill Lynch Capital Markets co-managed the deal, which has five installments. The formal name of the issuer is RJR Holdings Capital Corp.


Investors are scooping up the debt issue because RJR is regarded as a solid credit risk, analysts said.

“It is one of the strongest companies around in terms of resisting a recession,” said Tom Razukas, high-yield analyst with McCarthy Crisanti Maffei Inc. “Historically, food sales are not hurt during economic downturns. People still have to eat.”

“There is a lot of confidence in the RJR Nabisco deal,” said Michael Dahoud, a high-yield analyst at Smith Barney, Harris Upham & Co. “The company has recession-proof businesses, there are indications of a lot of interest in the assets RJR is planning to sell, and Kohlberg Kravis has a good track record in leveraged buyouts.”

In addition, RJR has a wide arsenal of products, such as Winston, Salem and Camel cigarettes, an array of baked goods and the Del Monte, Planters and Life Savers brands.

All of the debt securities are rated B-1 by Moody’s Investors Service Inc. and B-plus by Standard & Poor’s Corp. Some of the coupons were raised from initially expected levels to attract and win over investors, analysts said.

The mammoth size and complex pricing of the RJR issue drove yields well above the levels Drexel initially expected, analysts said.