KKR Delays First Data Syndication

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The showdown continues between Kohlberg Kravis Roberts & Co. and the banks that have committed to finance it's $26 billion takeover of First Data Corp. After having failed to reach a deal with the banks, KKR is now delaying the sale of the loans until next week, Bloomberg reported.
The First Data deal is widely seen as a test of investor appetite for buyout debt. The banks committed to the financing before rising subprime mortgage defaults led to a credit contraction that has resulted in dramatically higher borrowing costs. At the time, selling buyout loans to hedge funds and other investors was a relatively simple matter. These days investors are demanding larger yields, which means they will only agree to buy the loans at a discount. This would create large losses for the banks or force them to keep the loans on their books until the credit market improves.
The exact terms of the loans are not widely known. KKR plans to finance the takeover with something like $14 billion of bank loans, which one veteran credit banker estimated to be priced at 250 basis points over LIBOR. KDP Investment Advisors, an adviser to credit investors, is telling clients to pay no more than 94 cents on the dollar. "That would produce a floating interest rate of 10.75% on the loans, or roughly 500 basis points over Libor," KDP tells Market Watch.
Earlier reports indicated that KKR had agreed to abandon the nearly pure Cov-Lite structure of the deal by including a leverage ratio covenant in the loan documentation. But that covenant—which DealBook has described as "toothless"—may not satisfy many investors who still might still view the terms as too loose for the perceived risk involved. Part of the ongoing dispute between KKR and its banks may be how tight those covenants should be.
On Tuesday, the Federal Reserve's Open Market Committee is widely expected to announce guts it its interest rate targets. It could be that the KKR and its banks hope the cuts will revive investor interest in First Data loans, making the loans easier to sell at some level closer to par.
KKR May Delay First Data Loan Sale on Terms Dispute [Bloomberg]
First Data LBO may be costly for banks involved [Market Watch]
K.K.R. and Banks Said to Dispute First Data Terms [DealBook]

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