KKR prices $225 million sale of $25-par notes; Strategic Hotels launches partial tender offer

By Stephanie N. Rotondo

Portland, Ore., Nov. 7 - Preferred stocks were a bit subdued Monday as the market turned its concerned gaze to Italy from Greece.

"We got through Greece; now we're on Italy," a trader said, referring to news that Greece's prime minister and opposing party leaders had agreed upon a power-sharing agreement and rumors that Italy's prime minister was possibly readying to leave his post.

In the primary market, KKR Financial Holdings LLC priced a $225 million of senior notes due Nov. 15, 2041 with a $33.75 million greenshoe.

Elsewhere, Strategic Hotels & Resorts Inc. announced a partial tender offer for its preferred issues. The Chicago-based real estate investment trust said it will repurchase up to 4.72 million of preferreds at a premium to par.

KKR heralds new deal

New York-based investment firm KKR Financial priced $225 million of senior notes due Nov. 15, 2041 and granted the underwriters an over-allotment option to purchase up to $33.75 million aggregate principal amount of additional notes, according to a term sheet.

Interest will be paid quarterly beginning Feb. 15, 2012 at a rate of 8.375%.

A trader said he saw a $24.72 bid in the grey market, up from $24.70 bid, $24.80 offered earlier in the session.

"Not bad," he said of the issue's initial showing.

Price talk on the notes was 8 3/8% to 8½%, according to market sources. The notes are non-callable for five years.

The notes are expected to close on Nov. 15.

Citigroup Global Markets Inc., Morgan Stanley & Co. LLC, UBS Securities LLC and Wells Fargo Securities, LLC are acting as joint book-running managers for the offering. KKR Capital Markets LLC and RBC Capital Markets, LLC are acting as co-managers of the offering.

The proceeds will be used to repay senior debt and for general corporate purposes.

The notes will be listed on the New York Stock Exchange under the symbol "KFH." Trading will begin within 30 days after the notes are issued.

Strategic Hotels tenders

Strategic Hotels & Resorts launched a 4.72 million-share tender offer for its 8.25% series C cumulative redeemable preferred stock, 8.25% series B cumulative redeemable preferred stock and 8.5% series A cumulative redeemable preferred stock.

The REIT has about 14.84 million total preferreds. The issues are listed in order of acceptance priority.

A trader said that because the tender only covers a small portion of the overall number of preferreds, being able to participate will be "like a lottery."

He noted that all three series of preferreds "jumped" on the news.

The series C preferreds (NYSE: BEEPC) gained $1.27, or 4.95%, to close at $26.95. The series B preferreds (NYSE: BEEPB) earned $1.10, or 4.27%, to close at $26.92, and the series A preferreds (NYSE: BEEPA) climbed up $1.40, or 5.34%, to $27.64.

Holders of the series C and B preferreds will get $26.50 per share, while series A holders will receive $26.70 per share.

The price will be paid in each case net to the seller in cash, less any applicable withholding taxes and without accrued dividends.

The offer expires Dec. 7.

Also in the world of REITs, Public Storage's 6.95% series H cumulative preferreds (NYSE: PSAPH) were trading actively, a trader said.

The preferreds finished a penny better at $25.25.

"It's a yield-to-call play," he said of the issue, which will be redeemed Nov. 28.

The call price is par plus accrued dividends from Oct. 1 through the call date.

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