KKR brings private trade; modest issuance to continue; PNC firms; light volumes in secondary

By Aleesia Forni and Andrea Heisinger

New York, Jan. 25 - Friday saw one new investment-grade trade from KKR Group Finance Co. II LLC, but was otherwise quiet at the end of a four-day week.

KKR priced $500 million of 30-year guaranteed senior notes via Rule 144A and Regulation S. The size of the offering was increased by $200 million.

A source said that there was "just under $1.5 billion in demand" for the sale, as investors continue to grab for the scant amount of new high-grade bonds coming to the market.

There was about $11.5 billion of straight investment-grade bonds sold during the past week, a source said, not including any of the Yankee or preferred stock issues. This was at the lower end of the range of $10 billion to $15 billion of projected supply for the week.

"It [issuance] was a bit more quiet and modest than we were expecting," one source said.

There is about the same amount of sales expected for the coming full week - possibly more - at "north of $15 billion" possible, the source said.

"It's not truly going to pick up until the following week."

The Markit CDX Series 18 North American Investment Grade index firmed 2 basis points to a spread of 85 bps.

The secondary market saw tightening in PNC Bank NA's recent issuance, market sources said on Friday.

"Seems like the rally continues on light volumes," one trader added on the overall market's tone.

Investment-grade bank and brokerage credit default swaps costs were tighter on Friday.

Bank of America's CDS costs firmed 4 bps to 109 bps bid, 112 bps offered. Citi's CDS costs were 4 bps tighter at 107 bps bid, 110 bps offered. J.P. Morgan's CDS costs firmed 2 bps to 79 bps bid, 82 bps offered. Wells Fargo's CDS costs also declined 2 bps to 71 bps bid, 73 bps offered.

Merrill Lynch's CDS costs were 2 bps tighter at 110 bps bid, 115 bps offered. Morgan Stanley's CDS costs declined 8 bps to 134 bps bid, 138 bps offered. Goldman Sachs' CDS costs firmed 4 bps to 129 bps bid, 133 bps offered.

KKR does long bond

KKR Group Finance sold an upsized $500 million of 5.5% 30-year senior notes (/A-/A) in Friday's market to yield 245 bps over Treasuries, an informed source said.

Whispered guidance at midday was in the range of 250 basis points to 262.5 bps over Treasuries, with final talk in the 250 bps area, the source said.

The size of the trade was increased from $300 million.

The sale was done under Rule 144A and Regulation S.

Citigroup Global Markets Inc., Goldman Sachs & Co., KKR and Morgan Stanley & Co. LLC were bookrunners.

Proceeds are being used for general corporate purposes.

There is a guarantee by New York City-based parent company KKR & Co. LP, along with subsidiaries KKR Management Holdings LP and KKR Fund Holdings LP.

The private equity firm was last in the market selling senior notes in a $500 million deal of 10-year maturity on Sept. 22, 2010.

PNC notes firm

PNC Bank's $750 million of 0.8% three-year senior bank notes tightened 2 basis points to 43 bps bid, 41 bps offered.

The notes were quoted flat at 45 bps bid on Thursday following Wednesday's sale at a spread of Treasuries plus 45 bps.

The notes were seen at 39 bps offered at another desk on Friday.

The $750 million tranche of 2.95% 10-year subordinated notes traded 5 bps tighter compared to Thursday's levels at 115 bps bid, 113 bps offered early in the session.

Another market source quoted the notes at 116 bps bid, 115 bps offered later during the day.

The notes were sold with a spread of 117 bps over Treasuries.

The $1.75 billion sale also included $250 million of three-year floating-rate senior bank notes, which were sold at par.

The subsidiary of PNC Financial Services Group is based in Pittsburgh.

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