Sept. 21 (Bloomberg) -- The risk of owning First Data Corp. debt fell on speculation that banks found enough investors for a $5 billion loan that will help finance the credit-card processor's purchase by Kohlberg Kravis Roberts & Co.

Credit-default swaps on bonds of Greenwood Village, Colorado- based First Data shrank 10.8 basis points to 519.2 basis points, the lowest in six weeks, according to CMA Datavision in London.

Credit Suisse Group, the Zurich-based bank leading the financing, began seeking investors for the loan this week after slicing the offering from $14 billion as investors shunned high- risk loans. The financing for the $26 billion purchase of First Data is the biggest attempted since rising U.S. mortgage defaults led to the highest borrowing costs for LBOs in four years.

A successful sale may raise the prospects for more than $300 billion in loans and bonds needed by private equity firms to finance other takeovers.

``There's no doubt this is going to get done,'' said Manny Labrinos, who helps oversee $2 billion as a portfolio manager at Nuveen Investment Management in Los Angeles. ``It's the positive tone of the market that's gotten things moving.''

Credit Suisse spokesman Bruce Corwin and David Lilly, a spokesman for New York-based KKR, declined to comment. Colin Wheeler, a spokesman for First Data, didn't return a call.

Signs of Demand

Interest in the loans may have been driven partly by the Federal Reserve's reduction in its benchmark lending rate by a half percentage point. The Fed, seeking to prevent the economy from sinking into recession, cut the federal funds rate to 4.75 percent Sept. 18, the day after banks began marketing the loans.

In a sign of investor demand, the extra yield investors require to own investment-grade corporate bonds rather than safer Treasuries narrowed 7 basis points since then to 151 basis points, the first three-day decline since May 2005, according to Merrill Lynch & Co. index data. Junk bond sales this week rose to the highest since July after the Fed cut.

Credit Suisse cut the issue price of the seven-year loan to 96 cents on the dollar and offered to extend credit to some investors to help them buy the debt, said people with knowledge of the matter.

The banks, including Citigroup Inc. and Goldman Sachs Group Inc., both of New York, offered the sweetened terms to drum up demand for the debt. They agreed to keep another $8 billion of loans. A $9 billion bond sale is also planned.

Facing Writedowns

Banks face writedowns of $25 billion of loans and bonds on their books if investors' appetite for high-risk, high-yield debt doesn't improve, according to estimates made by Citigroup analysts in August. Banks lose money when they sell loans at a discount. The sales also reduce the value of the debt that remains on their balance sheets.

Credit-default swaps on First Data loans have also narrowed. The contracts, which trade pending the sale of the loan, fell 23 basis points yesterday to 320 basis points, according to Lehman Brothers Holdings Inc. in New York.

Credit-default swaps pay buyers the face value of debt protected if the borrower fails to meet payments. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

First Data rose 6 cents, or 0.2 percent, today to $33.85 at 1:54 p.m. in New York Stock Exchange composite trading. KKR is offering $34 a share for the company, the world's largest processor of electronic payments.

Indexes Improve

The CDX North America Investment Grade Index Series 9 fell 2 basis points to 49.5 basis points in New York today, according New York-based Phoenix Partners Group LLC.

A drop in the index, used to speculate on the ability of companies to repay their debt, signals improvement in the perception of credit quality. The index is the most actively traded instrument in credit markets.

Series 8 of the index, considered riskier because it includes mortgage lender Residential Capital LLC and other companies that have been cut below investment grade or are expected to be, narrowed 1 basis point to 55.5 basis points.

To contact the reporter on this story: Bryan Keogh in New York at bkeogh4@bloomberg.net

Last Updated: September 21, 2007 17:32 EDT