Microsoft prices mega-deal, Alterra, KKR, MetLife among other deals; Adobe bonds firm

By Andrea Heisinger and Cristal Cody

New York, Sept. 22 - Microsoft Corp., American Financial Group, Inc., Alterra Finance LLC, Liberty Property LP, KKR Group Finance Co. LLC and MetLife Global Funding I sold bonds on Wednesday after the market had taken a breather from new deals. A Federal Reserve Federal Open Market Committee meeting the previous day had mostly kept issuers out of the high-grade market.

That changed in a hurry as Microsoft announced a four-tranche sale early in the day. It bloomed to $4.75 billion in size and set a record low coupon for its three-year note. The size had originally been announced at a minimum of $2 billion but grew quickly as demand for the AAA rated bonds piled higher.

MetLife Global Funding priced an upsized $850 million in five-year notes via Rule 144A.

One of the many upsized deals for the day came from Liberty Property. Its $350 million deal of 10-year notes was upsized by $100 million.

Another came from American Financial Group, which priced $132 million of 40-year senior notes at par of $25 each. The size was increased by $32 million.

KKR Group Finance upsized its guaranteed Rule 144A sale to $500 million in 10-year notes. The size had been announced at $350 million.

Specialty insurance company Alterra Finance sold $350 million of 10-year notes.

There could be a few deals remaining on Thursday as companies continue looking for low coupons.

In the secondary market, Microsoft's new debt firmed at least 5 bps, sources said.

Also, Adobe Systems Inc.'s bonds tightened on the day, according to sources.

Overall investment-grade Trace volume dropped 13% to about $14 billion, a source said.

The Markit CDX Series 14 North American investment-grade index eased 3 bps on Wednesday to a spread of 111 bps, according to Markit Group Ltd.

Treasuries continued to rally on Wednesday sending yields down a third day on expectations the Federal Reserve will help the economy with additional steps.

The 10-year note yield fell 1 bp to 2.56%. The yield on the 30-year bond dropped 3 bps to 3.75%.

Microsoft sells $4.75 billion

Microsoft Corp. sold an upsized $4.75 billion of senior unsecured notes (Aaa/AAA/AA+) late in the day in four tranches, a source close to the sale said.

The size had initially been announced at a minimum of $2 billion, with $500 million in each tranche. There was just over $15 billion on the books, the source said.

"It was phenomenal," he said. "Every tranche was upsized and we ended up with $4.75 billion. We priced inside talk and inside whispers, even."

A $1 billion tranche of 0.875% three-year notes priced at a spread of Treasuries plus 25 bps. They were priced at the tight end of talk in the 30 bps area, with a margin of plus or minus 5 bps.

The $1.75 billion of 1.625% five-year notes priced at 40 bps over Treasuries. This was at the tight end of guidance in the 45 bps area, plus or minus 5 bps.

A third tranche was $1 billion in 3% 10-year notes sold at Treasuries plus 55 bps. Talk was in the 60 bps area, and the notes priced at the tight end of that.

The final tranche was $1 billion in 4.5% 30-year bonds priced at a spread of 83 bps over Treasuries. These notes had guidance in the 87.5 bps area, and priced at the tight end of that.

Barclays Capital Inc., Citigroup Global Markets and J.P. Morgan Securities were active bookrunners.

Proceeds are being used for general corporate purposes.

The company last priced bonds in a $3.75 billion sale in three tranches on May 11, 2009. The 2.95% five-year maturity from that issue priced at 95 bps over Treasuries, while the 4.2% 10-year tranche priced at 105 bps. The 5.2% 30-year bonds from the deal were also priced at 105 bps over Treasuries. Those were nearly twice the spreads in some cases of the new notes.

The software and computing device maker is based in Redmond, Wash.

Microsoft gets low coupon

There were some arguments over just how many records the new Microsoft bonds would break, with low coupons predicted.

In the end, it seemed only the three-year tranche could be confirmed as having the lowest coupon on record at 0.875%.

A previous record-low coupon for three-year notes was held by International Business Machines with its $1.5 billion deal of 1% three-year notes priced on Aug. 2.

A source who worked on the sale pointed to the $1.1 billion sale of notes in 10-year and 30-year maturities from Johnson & Johnson priced on Aug. 12 for reference.

The 3% coupon on the Microsoft 10-year did not beat the 2.95% 10-year note from J&J, but it did beat it on the yield. Microsoft's note yielded 3.101% where J&J's priced to yield 3.15%.

The J&J 4.5% 30-year bond tied the coupon for the Microsoft 30-year. The Microsoft bond once again won in the yields, the source said, at 4.567%, while J&J's 30-year yielded 4.631%.

"They still did pretty good," the source said of the Microsoft debt.

MetLife unit prices five-years

MetLife Global Funding sold an upsized $850 million of 2.5% five-year notes at Treasuries plus 120 bps, a source away from the sale said.

The size was increased from $800 million.

The notes (Aa3/AA-) were sold under Rule 144A and Regulation S.

Barclays Capital Inc., Credit Suisse Securities, Deutsche Bank Securities and J.P. Morgan Securities ran the books.

The funding arm of insurance giant MetLife Inc. is based in New York City.

Liberty Property upsizes

Liberty Property priced an upsized $350 million of 4.75% 10-year senior unsecured notes (Baa2/BBB/BBB+) at a spread of 225 bps over Treasuries, according to an FWP filing with the Securities and Exchange Commission.

The size was increased from $250 million.

Bank of America Merrill Lynch, Citigroup Global Markets and Wells Fargo Securities LLC were bookrunners.

Proceeds will be used to repay a portion of debt under a $500 million credit facility and for general corporate purposes.

The industrial and office property leasing and management company is based in Malvern, Pa.

KKR prices $500 million

KKR Group Finance sold an upsized $500 million of 6.375% 10-year senior notes under Rule 144A and Regulation S, a market source close to the sale said.

The size was increased from $350 million, a source said.

The notes (/A-/A) priced at a spread of Treasuries plus 387.5 bps, which was in line with talk in the 387.5 bps area.

Citigroup Global Markets, Goldman Sachs & Co., KKR Capital Markets and Morgan Stanley & Co. Inc. ran the books.

Proceeds are being used for general corporate purposes.

The deal is guaranteed by KKR & Co. LP, KKR Management Holdings LP and KKR Fund Holdings LP.

In secondary trading, KKR's notes firmed to 377 bps bid, 367 bps offered, a trader said.

The private equity firm is based in New York City.

Alterra's 10-years

Alterra Finance priced $350 million of 6.25% guaranteed 10-year senior unsecured notes to yield 6.25%, a source who worked on the sale said.

The notes (Baa2/BBB) priced at a spread of Treasuries plus 371.5 bps.

Bank of America Merrill Lynch, Citigroup Global Markets and Wells Fargo Securities LLC were bookrunners.

Proceeds are being lent to direct parent Alterra Holdings USA to repay a $200 million revolving loan under an amended credit agreement dated June 12, 2007.

The deal is guaranteed by Alterra Capital Holdings Ltd.

The specialty insurance company is based in Bernardsville, N.J.

Financial worries

Two of the day's financial deals from Alterra and KKR Group Finance were seen either pricing at a yield or with a high spread in the case of the latter.

"Investors are a little shaky on them," a market source said. "We went by outstandings and that's where they priced."

The Alterra deal was priced at the yield despite its mid-BBB ratings.

American Financial's $25 bonds

Property and casualty insurance holding company American Financial Group priced an upsized $132 million of 7% 40-year senior subordinated notes at par of $25 to yield 7%, an informed source said.

The deal size was increased from a planned $100 million. The company sold 5.28 million of the $25 notes, up from 4 million.

The deal (Baa2/BBB) priced at the tight end of talk for a 7.125% yield.

Bank of America Merrill Lynch and Wells Fargo Securities were bookrunners.

Proceeds are going toward general corporate purposes.

The issuer is based in Cincinnati, Ohio.

Microsoft firms in trading

Microsoft's new debt sold in four tranches was stronger in trading, while high-grade paper from Dell Inc., Hewlett-Packard Co. and others in the sector widened early on the deal news, a source said.

"The sector as a whole is probably a couple basis points weaker," the source said.

After Microsoft priced the deal, the notes firmed through late afternoon, sources said.

"Most of them are trading about 5 bps better in the gray," one trader said.

The notes due 2013 were seen at a 19 bps bid and later 1 bp tighter to 18 bps, according to sources. They came to market at a 25 bps spread.

The tranche of notes due 2015 traded at a 35 bps bid and soon firmed again to 32 bps bid, source said. That was also significantly tighter than the pricing spread of 40 bps.

The third tranche notes due 2020 firmed to a 54 bps bid and later in the afternoon were another 2 bps tighter on the bid side. The notes were seen stronger later at 48 bps, a source said. They came to market at 55 bps.

The bonds due 2040 traded 3 bps tighter at 80 bps versus the 83 bps pricing level, according to sources.

Adobe tighter

Adobe Systems' bonds firmed while the company's stock shed nearly 20% on Wednesday after the company gave a weaker fourth quarter forecast, according to sources.

Adobe's stock closed down $6.27, or 19.03%, to $26.67 after the company said third-quarter profit jumped 69%, but said it now expects fourth-quarter earnings of 48 cents to 54 cents a share.

The company's 4.75% notes due 2020 were seen trading tighter at 122 bps bid, 112 bps offered late Wednesday, compared to 125 bps bid, 120 bps offered on Tuesday afternoon.

"They're a little bit better," the trader said.

The 3.25% notes due 2015 were quoted at 77 bps offer.

"Saw the 5-year offer yesterday and today at 77, but it doesn't looked like they traded," one source said.

The software company is based in San Jose, Calif.

Bank, brokerage CDS costs weaker

A trader saw the cost of credit default swaps contracts protecting holders of bank paper against event of default was up to 5 bps wider on Wednesday.

In addition, CDS costs for brokerage/investment bank paper also was up to 5 bps wider.

Stephanie Rotondo contributed to this report.

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