Kroger, Mack-Cali, Idaho Power tap market as yields decline; Kroger bonds mixed in trading

By Andrea Heisinger and Cristal Cody

New York, April 10 - The primary side of the high-grade bond market showed signs of life on Tuesday with deals from Kroger Co., Mack-Cali Realty, LP and Idaho Power Co.

The market tone remained weak, but wasn't as bad as on Monday when no new bonds were priced because of a hangover from a report on jobs added in March and continued headlines on debt problems in Europe.

Grocery retailer Kroger priced $850 million of paper in 10- and 30-year maturities.

Mack-Cali sold $300 million of 10-year notes in its first bond deal since August of 2009.

Electric company Idaho Power priced $150 million of first mortgage bonds evenly divided between two tranches. Both of the notes were sold at the tight end of price talk.

There was also an offering announced by Willow No. 2 (Ireland) plc that will be done in tranches due 2017 and 2022. The debt will be guaranteed by Zurich Insurance Group Ltd. A source working on the deal said that it did not price by late Tuesday, and added that it was "to be decided" when that would take place.

The preferred stock market saw a deal announced by First PacTrust Bancorp Inc. The financial is planning to sell $25-par senior notes due 2020.

The slight rebound in the market tone was also aided by lower yields that helped encourage potential issuers to tap the bond market.

Some, such as Kroger, had to get in soon to fund upcoming bond maturities.

"It was a little more constructive [than Monday]," one source said. "Europe was open again."

A few more deals are expected on Wednesday and beyond, but "nothing major," a market source said.

"I don't think we're going to see a landslide. People are cautious."

The Markit CDX Series 18 North American investment-grade index eased 2 basis points to end at a spread of 104 bps.

Only Kroger's new deal was seen in afternoon trading in the secondary market, sources said.

"Too early," one trader said.

Kroger's bonds were mixed and mostly traded wider soon after pricing.

Global growth fears helped Treasuries rally. The benchmark 10-year note yield fell to 1.98% from 2.04%. The 30-year bond yield dropped to 3.13% from 3.19%.

Kroger's $850 million deal

Kroger sold an upsized $850 million of senior notes (Baa2/BBB/BBB) in two tranches, an informed source said.

The deal size was increased slightly from the originally announced $800 million. There was about $1.3 billion in demand on the books, the source said.

The company's $500 million of 3.4% 10-year notes were sold at a spread of Treasuries plus 150 bps. The notes priced in line with guidance set in the 150 bps area.

A $350 million tranche of 5% 30-year bonds priced at Treasuries plus 190 bps. The bonds were sold wider than talk for a spread in the 185 bps area.

Active bookrunners were Citigroup Global Markets Inc., Goldman Sachs & Co. and RBS Securities Inc.

Proceeds are being used to repay long-term debt, including Kroger's 6.75% senior notes due April 15 and 6.2% notes due June 15, and for general corporate purposes.

Kroger was in the market with a $450 million offering of 2.2% five-year notes on Jan. 12.

The food retailer's notes due 2022 traded wider soon after pricing at 153 bps bid, 145 bps offered, a trader said.

Going out, Kroger's 10-year notes traded at 146 bps offered, a trader said.

The 30-year tranche was seen trading early afternoon weaker at 195 bps bid and later tighter at 189 bps bid, 186 bps offered, traders said.

The grocery retailer is based in Cincinnati.

Mack-Cali upsizes

Mack-Cali Realty sold an upsized $300 million of 4.5% 10-year senior notes (Baa2/BBB/) to yield Treasuries plus 255 bps, a source who worked on the trade said.

The size of the trade was increased from $250 million. The notes were sold at the low end of price talk in the 260 bps area.

There was just over $1 billion in demand for the notes, the source said.

Bank of America Merrill Lynch, Citigroup Global Markets Inc. and J.P. Morgan Securities LLC ran the books.

Proceeds are being used to repay borrowings under a $600 million revolving credit facility and for general corporate purposes, including purchasing or retiring outstanding debt.

Mack-Cali was last in the bond market with $250 million of 7.75% 10-year notes priced at 411.5 bps over Treasuries on Aug. 5, 2009.

The real estate company is based in Edison, N.J.

Idaho Power's $150 million

Idaho Power priced $150 million of first mortgage bonds (A2/A-/A-) in two parts, a source who worked on the deal said.

It brought $75 million of 2.95% 10-year notes at a spread of 100 bps over Treasuries. The tranche sold at the low end of talk in the 100 to 105 bps range, the source said.

A $75 million tranche of 4.3% 30-year bonds sold Treasuries plus 120 bps. Those bonds also priced tight to guidance in the 120 to 125 bps range.

Bookrunners were Bank of America Merrill Lynch, J.P. Morgan Securities LLC and Wells Fargo Securities LLC.

The electric utility is based in Boise.

Zurich Insurance plans notes

Willow No. 2 (Ireland) is planning an offering of notes (A1/A+/) in two parts, a market source said.

The deal will consist of five- and 10-year notes that will be guaranteed by Zurich Insurance Group Ltd.

The paper will be priced under Rule 144A and Regulation S.

Bank of America Merrill Lynch, Barclays Capital Inc. and Goldman Sachs & Co. are bookrunners.

The issuer is a subsidiary of Zurich Insurance, formerly called Zurich Financial Services Ltd., and offers financial services and insurance. It is based in Zurich, Switzerland.

First PacTrust's $25-par deal

First PacTrust Bancorp will sell $25-par senior notes due 2020, according to a prospectus filed with the Securities and Exchange Commission.

First PacTrust will apply to list the notes on the Nasdaq Global Market.

Sandler O'Neil + Partners LP is bookrunner.

Proceeds will be used for possible acquisitions, support of organic growth, investments in or extensions of credit to subsidiaries, investments in securities and for general corporate purposes.

First PacTrust is headquartered in Irvine, Calif.

Stephanie N. Rotondo contributed to this review

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