Kroger upsizes deal as high-grade issuance cools; bonds mostly flat; Kroger trades tighter

By Andrea Heisinger and Cristal Cody

New York, Jan. 12 - Grocery retailer Kroger Co. sold debt on Thursday and other high-grade issuers stood down following a steady flow of new deals in the first part of the week.

Kroger priced $450 million of five-year paper at the tight end of guidance. The books were roughly five times oversubscribed, an informed source said.

Bond sales took place in Spain and Italy on Thursday, and issuers wanted to get their deals out of the way prior to the outcome of these euro zone offerings. The auctions were successful, sources said.

It was also time for the primary to take a breather and let the secondary absorb all of the new deals that have priced, a source said.

"We're just looking at how everything performed," he said. "No reason to price right now if you don't have to."

A syndicate source said that there was "nada happening" on Thursday.

"It's super quiet today but kind of nice," the syndicate source added.

Bonds traded flat to moderately better. The Markit CDX Series 17 North American Investment Grade index firmed 1 basis point to a spread of 115 bps.

In the secondary market, Kroger's new notes traded 2.5 bps tighter.

Overall trading volume was flat at about $13 billion on Thursday.

Treasuries fell after successful bond auctions in Spain and Italy. The benchmark 10-year Treasury note yield rose 2 bps to 1.92%. The 30-year bond yield edged up 1 bp to 2.97%.

Kroger upsizes deal

Kroger sold an upsized $450 million of 2.2% five-year senior notes (Baa2/BBB/BBB) to yield Treasuries plus 137.5 bps, a source close to the trade said.

The paper priced at the tight end of talk in the 140 bps area, plus or minus 2.5 bps. The size was increased from $400 million.

Bank of America Merrill Lynch, Mitsubishi UFJ Securities (USA) Inc. and U.S. Bancorp Investments Inc. were the bookrunners.

Proceeds are being used to prefund obligations under the consolidated UFCW/multi-employer pension fund and for general corporate purposes.

Kroger was last in the debt market with a $300 million sale of 5.4% 30-year bonds on July 6, 2010 at 155 bps over Treasuries.

In the secondary market, the new notes firmed to 135 bps bid, 132 bps offered, a trader said.

The grocery retailer is based in Cincinnati.

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