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Kroger wraps up acquisition financing with sell-out bond
By Danielle Robinson
NEW YORK, Dec 16 (IFR) - Investors flooded Kroger (Dusseldorf: KOG.DU - news) with USD8bn of demand for its USD2bn four-part acquisition financing on Monday, demonstrating their desire to reduce cash levels before year-end outweighs any concerns they might have about the Fed starting any tapering at its FOMC meeting this week.
Led by Bank of America Merrill Lynch, US Bancorp (Frankfurt: UB5.F - news) and Wells Fargo as active bookrunners, supermarket sector favorite Kroger was able to price as much as 20bp tighter than where some of its bonds were first whispered and still ended up paying negative new issue concessions in the double digits.
Before guidance was tightened, orders had topped USD9bn.
This was in spite of the possibility that the FOMC could officially announce the beginning of its tapering of stimulus bond buying after its meeting on Tuesday and Wednesday.
"People care (about tapering,) but the expectation is that if the Fed does start it at this meeting it will be more symbolic than anything else, and the market has already adjusted for that," said one syndicate manager.
"The strength of the Kroger deal is more an illustration that investors still have large cash balances they want to reduce, and that it's not a question of demand being there, but whether there are any issuers willing to print deals this late in the year."
Kroger will be using the proceeds to help pay its USD2.5bn acquisition of grocery chain Harris Teeter, and therefore had more of an urgency to get the funding done before rates begin to rise.
Analysts, however, are relatively confident that Kroger will carry out its plan to pay down debt to restore its leverage at levels consistent with a solid mid-BBB rating. The company is rated Baa2 by Moody's and BBB by S&P and Fitch, and all three have a stable outlook.
"Kroger's balanced financial policy, stable operating profile and improved growth opportunities from the Harris Teeter acquisition will continue to drive a positive credit story," wrote CreditSights.
The other deal of the day came from the FIG sector.
Although not counted in the investment-grade tally, Royal Bank of Scotland decided to slip in ahead of the expected barrage of European capital securities issuance planned for the new year, with a USD2bn 10-year subordinated Tier 2 offering.
Leads Credit Suisse, JP Morgan (Other OTC: JPYYL - news) , Morgan Stanley (Xetra: DWD.DE - news) and RBS (LSE: RBS.L - news) itself received USD7.5bn of demand for the offering, enabling the UK bank to pull in pricing to T+325bp from initial thoughts of T+340bp and guidance of T+330bp.
At 325bp, RBS paid just 6bp in new issue concession, versus its outstanding sub-debt, the RBS 6.1% June 2023s at T+310bp or G+319bp.
Buying securities that are junior in the capital structure of European banks has become a favorite play of bond investors on an improving European financial sector.
The view is that European banks are where US banks were two years ago in terms of steadily improving their balance sheet and placing their bonds on a spread tightening track as a result.
New issuance is expected to continue on Tuesday, but with USD4bn, supply has almost reached the high-end of syndicate expectations of USD2bn to USD5bn for the week.
THE KROGER COMPANY (NYSE: KR - news)
The Kroger Co (KR), Baa2/BBB/BBB (s/s/s), announced USD benchmark SEC registered 4-part offering that consists of a 3-year (10/15/2016) fixed and FRN, 5-year (1/15/2019) and 7-year (1/15/2021). The notes contain a 101 CoC put and a special mandatory redemption at 101 if acquisition not consummated by 9/30/2014, a MWC on the fixed tranches, and a par call 1mo prior to maturity on the 5-year and 7-year tranches. The active bookrunners are Bank of America (TLO: BAC.TI - news) , US Bank and Wells Fargo (Hamburg: NWT.HM - news) , with Citigroup (NYSE: C - news) and Royal Bank of Scotland as passive. UOP: to partially fund the pending acquisition of Harris Teeter and GCP. Settle: T+5.
IPT: 3yr FXD +75bp area, 3yr FRN Libor equiv, 5yr +100bp area, 7yr +125bp area
PRICE GUIDANCE: 3yr FXD at T+60bp area, 3yr FRN at 3mL+equivalent, 5yr FXD at T+85bp area, 7yr at T+115bp area. Area = (+/-5bp)
LAUNCH: USD2bn 4-part total. USD300m 3yr FXD T+55bp, USD500m 3yr FRN 3mL+53bp, USD500m 5yr at T+80bp, USD700m 7yr at T+110bp
PRICED: USD2bn 4-part total
-USD300m 1.20% 3-year (10/17/2016) fixed. At 99.937, yld 1.223%. T+55bp. MWC+8bp. 1st pay: 4/17/2014
-USD500m 3-year (10/17/2016) FRN. At 100, floats 3mL+53bp. 1st pay: 4/17/2014
-USD500m 2.30% 5-year (1/15/2019). At 99.852, yld 2.331%. T+180bp. MWC+12bp. 1st pay: 7/15/2014
-USD700m 3.30% 7-year (1/15/2021). At 99.755, yld 3.339%. T+110bp. MWC+16bp. 1st pay: 7/15/2014
BOOK: USD8bn total (USD9bn peak). 3yr FRN USD1.1bn, 3yr FXD USD2.4bn, 5yr FXD USD2.4bn, 7yr USD2.1bn.
5yr: Neg 31bp (KR 2.2 1/17s G+91. 3s/5s curve = 20bp. FV = 111bp. NIC = neg 31bp)
7yr: neg 20bp. (KR3.85 8/23s G+139. 7s/10s curve = 10-15bp. FV= 124-129 NIC = neg 20bp)
COMPS:
KR 2.2% Jan 2017, G+91
KR 3.85% Aug 2023 G+129bp
ROYAL BANK OF SCOTLAND
The Royal Bank of Scotland Group plc, Ba2/BB+/BBB- (n/n/s), announced a USD benchmark SEC registered 10-year (12/19/2023) subordinated Tier 2 notes. The joint bookrunners are Credit Suisse, JP Morgan, Morgan Stanley and Royal Bank of Scotland. UOP: general corporate purposes. Settle: T+3.
IPT: T+340bp area
PRICE GUIDANCE: T+330bp area (+/- 5bp)
LAUNCH: USD2bn at T+325bp
PRICED: USD2bn 6.00% 10-year (12/19/2023). At 99.098, yld 6.122%. T+325bp.
BOOK: USD7.5bn
NIC: 6bp
COMP:
RBS (Ba2/BB+/BBB-) 6.10% June 10, 2023 at G+319bp (Reporting by Danielle Robinson; Editing by Natalie Harrison)
