Lorillard Tobacco Sells Benchmark US Debt Offering

Lorillard Tobacco Co. of Greensboro, N.C., sold a $750 million two-part bond offering in the U.S. debt market Monday, according to a person familiar with the deal.

The deal includes a $500 million five-year tranche and a $250 million 30-year tranche. The company added the 30-year tranche at midday after originally disclosing only the five-year tranche Monday morning.

Lorillard Tobacco Co.

Lorillard Tobacco Co.

Both tranches launched at the narrow end of price guidance, indicating strong demand, with the five-year piece at 225 basis points over Treasurys and the 30-year piece at 300 basis points over Treasurys.

The five-year notes were sold with a coupon of 3.5% at a price of 99.727 to yield 3.56%. The 30-year notes were sold with a coupon of 7% at a price of 99.207 to yield 7.064%.

The offering includes a change-of-control provision, which is designed to safeguard investors against event risk if the issuer is taken over in a leveraged buyout or undergoes some other fundamental corporate change. The covenant is triggered at a premium price of $101.

Leading the debt sale are Barclays Capital (BCS, BARC.LN), Goldman Sachs Group Inc. (GS) and Wells Fargo Securities (WFC), supported by J.P. Morgan Chase & Co. (JPM) and Royal Bank of Scotland Group PLC (RBS, RBS.LN).

Proceeds will be used for general corporate purposes, which include repurchasing outstanding debt.

The deal has been rated Baa2 by Moody’s Investor Service and BBB- by Standard & Poor’s.

The last time Lorillard Tobacco issued U.S. debt was in April 2010 for $1.0 billion, according to data provider Dealogic. The current offering is only the third time Lorillard Tobacco has tapped the U.S. debt market since Dealogic began keeping records in 1995.

Lorillard Tobacco is a subsidiary of Lorillard Inc. (LO), the third-largest cigarette maker in the U.S. The company manufactures five cigarette brands, including the menthol-flavored brand Newport, which accounted for 90% of the company’s sales revenue in the 2010 fiscal year.

Last Monday, Lorillard Inc. reported second-quarter profits jumped more than 10% year-to-date due to higher cigarette-sales volumes and prices, according to the earnings release.

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