First Data sells $2.2 bln high-yield bonds: source

By Dena Aubin

NEW YORK (Reuters) - First Data Corp on Tuesday took advantage of a recovering junk bond market to sell $2.2 billion of debt, the latest of a handful of companies to work off part of a backlog of buyout financings.

The credit card processor's bond issue will help repay temporary loans used for its leveraged buyout by Kohlberg Kravis Roberts KKR.UL, which closed on September 24. First Data sold its bonds at a yield of 10.875 percent, slightly higher than the 10.75 percent expected.

The issue was well oversubscribed, a source close to the deal said.

Still, the debt sale is only a fraction of the $9 billion of high-yield bonds First Data has planned to help finance its LBO. Last month, it sold $9.445 billion of a $13 billion term loan that is also part of the LBO financing package.

"There's appetite for some of these deals, but it's limited," said Mirko Mikelic, portfolio manager for Fifth Third Asset Management in Grand Rapids, Michigan. "They're not able to get the size done that they did in the past."

Investment banks are limiting the amount of bonds they issue to keep the supply from pressuring yield spreads wider, he said.

LEADING INVESTMENT RETURNS

Manny Labrinos, portfolio manager for the Nuveen High Yield Bond Fund in Los Angeles, said the original yield guidance of about 10.75 percent did not look quite high enough, "especially given all the additional paper they will have to issue."

Citigroup, Credit Suisse, Deutsche Bank, HSBC, Goldman Sachs, Lehman Brothers and Merrill Lynch managed First Data's Rule 144a private sale. The notes were priced at a discount with a coupon of 9.875 percent.

After succumbing to selling pressure in July and August, junk bonds have rebounded since the Federal Reserve cut interest rates on September 18, easing worries about fallout from a global credit crunch.

Month-to-date, junk bonds have posted investment returns of about 1.28 percent, the best performance of major U.S. fixed-income assets, according to Merrill Lynch data.

"The economic data maybe hasn't been quite as awful as people feared, and you have the Fed helping and in a position to help the market a little further," said Brian Arsenault, high-yield strategist for Morgan Stanley.

"Valuations (of high-yield bonds) aren't incredibly cheap, but you're definitely getting paid a much more meaningful premium than you were over the spring in the high-yield market," he said.

RATE CUT OPENS FLOODGATES

The Fed rate cut also helped reopen the new issue pipeline, which all but shut down in July. Junk-rated companies have sold nearly $14 billion of bonds since the rate cut, up from just $2.3 billion in July and August, according to data from high-yield research firm KDP Investment Advisors.