NEW YORK, APRIL 11 -- RJR Nabisco Holding Corp., bolstered by strong investor demand, issued 100 million shares of stock today, raising $1.125 billion in fresh capital, far more than the $750 million the food and tobacco giant had expected.
It was the first new offering of stock for the company since it was taken private in 1989 in the biggest corporate buyout in history. Previously, the company had issued stock in exchange to bondholders in an effort to cut its huge debt.
The company has won wide support for its steady moves to get out from under the debt incurred in the $25 billion buyout, led by Kohlberg, Kravis Roberts & Co.
The stock initially sold for about $7 on a when-issued basis earlier this year but closed today at $11.50, up 37 1/2 cents, on the New York Stock Exchange. RJR issued the 100 million common shares at $11.25 each, giving investors a slight discount.
In a reflection of the company's rising fortunes, Standard & Poor's Corp. today raised its rating on $13 billion worth of RJR debt and preferred stock. The rating agency said its action, which brings the securities a notch closer to investment grade, reflects the cumulative impact of RJR's refinancing efforts since the buyout.
Analysts praised RJR for its efforts at selling the stock. Most of the stock was sold to institutional investors in the United States, although placements also were made in Europe and Asia. "There was very strong institutional demand," said one equity analyst, who wished to remain anonymous.
"They did an extremely good job in marketing it," said Eric Dobbyn, who analyzes high-yield junk bonds such as RJR's for Smith Barney, Harris Upham & Co.
Analysts said the slight discount compared with the market price helped spur investor interest in the stock issue and raise more money than expected for RJR.
"This will strengthen RJR's balance sheet even more than expected because of the increase of the share offering," said another junk bond analyst. "RJR will be able to retire more debt."
Much of the debt issued in connection with the RJR buyout was made up of junk bonds, for which issuers typically must pay above-market interest rates to attract investors. But as the securities approach investment grade, the company will be able to cut its interest payments.
RJR recently completed a recapitalization program that refinanced some $7.6 billion of debt coming due, significantly cutting the interest expense and total amount of debt.
S&P warned that the company's margin of cash available to cover its debt payments remains thin and that only moderate improvement is expected over the next two years.
But the company's commitment to reduce financial risk makes the outlook positive, the New York-based agency said. S&P also said additional upgrades could be predicated upon continued strong growth in cash flow.