KKR Cancels $1.4 Billion Loan to Refinance Maxeda LBO (Update5)
By Cecile Gutscher and John Glover
Enlarge Image
Henry Kravis, partner, Kohlberg Kravis Roberts & Co.
July 16 (Bloomberg) -- Kohlberg Kravis Roberts & Co. canceled plans to raise 1 billion euros ($1.4 billion) of loans for Dutch retailer Maxeda BV as investors shun high-yield debt.
More than 20 financing deals have been postponed or restructured in the past three weeks as losses from the U.S. subprime mortgage rout rattled investor confidence. New York- based KKR is trying to raise 9 billion pounds ($18 billion) this week to finance its takeover of Nottingham, England-based drugstore chain Alliance Boots Plc.
KKR abandoned the debt sale for Amsterdam-based Maxeda after failing to entice investors by reducing prices for the debt and introducing covenants to restrict future borrowing. Citigroup Inc. and ABN Amro Holding NV have guaranteed to provide the financing.
``Due to current volatility of the credit markets, Citigroup and ABN Amro have decided to postpone syndication to a later stage when they expect markets to have stabilized,'' Maxeda spokesman Arnold Drijver said today. The company's financing ``is in place,'' he said.
Arrangers of loans seek to reduce the amount they lend by syndicating the debt to a wider group of banks and money managers. When the underwriting banks can't sell the loan, they keep the debt on their own balance sheets.
Interest Charges
Citigroup and ABN Amro are charging as much as 3 percentage points over the European interbank offered rate on the loans, or 7.2 percent at current rates. The loans will refinance debt including 275 million euros of high-yield bonds paying 7.875 percent in annual interest. Maxeda's bonds are rated B+ by Standard & Poor's, four steps below investment grade.
Citigroup spokesman Jeffrey French and ABN Amro spokeswoman Victoria Garrod, both in London, declined to comment.
KKR, whose funds control companies with more than $100 billion in annual revenue, bought Maxeda, the biggest operator of home-improvement stores in the Benelux countries, in 2004.
The credit quality of European companies acquired in leveraged buyouts fell to the lowest since October last week. The iTraxx LevX Index of credit-default swaps on high-risk, high-yield loans to 35 companies dropped to 98.41 on July 12. It reached a high of 101.53 in February and today traded at 98.67, according to data compiled by Bloomberg.
``This tells you there's some nervousness out there,'' said Rob Jones, head of high-yield research at Barclays Capital in London. Barclays recommends investors reduce holdings of European high-risk high-yield bonds to below the amount included in benchmark indexes.
Focus Default
Debt from retailers is under scrutiny after Crewe, England- based Focus DIY Group Ltd., being acquired by Cerberus Capital Management LP, defaulted on 100 million pounds of notes last month. Investors received just 40 percent of face value.
``Focus put everyone on guard,'' said Patrick Steiner, who oversees $4 billion of assets at Octagon Credit Investors in London and declined to participate in the Maxeda loan. The Dutch company's debt is 6.25 times cashflow, according to data compiled by Bloomberg. That's above the 4.8 times average for leveraged finance buyouts tracked by Standard & Poor's LCD unit.
``We passed on a number of deals where we thought the structure doesn't work,'' Steiner said. ``The market was clearly out of control for a while.''
London-based buyout firms Candover Investments Plc and Cinven Ltd. postponed their financing for publisher Springer Science+Business Media GmbH in Berlin, according to a banker familiar with the transaction, who declined to be identified because the deal is private.
Covenant-Loose
Buyout firms are managing to get financing for some of their businesses. Blackstone Group LP and Lion Capital LLP raised 192 million euros today for Paris-based soft-drinks maker Orangina in a sale of so-called covenant loose loans that omit standard lender safeguards.
In leveraged buyouts, firms put up a little of their own money and borrow the rest, piling the debt onto the company being acquired. The higher borrowing results in credit ratings being cut to high-yield, or below Baa3 at Moody's Investors Service and BBB- at S&P.
Three-month Euribor, an average of rates set daily by banks and used as a borrowing benchmark, is currently 4.2 percent.
To contact the reporter on this story: Cecile Gutscher in London at cgutscher@bloomberg.net ; John Glover in London at johnglover@bloomberg.net
Last Updated: July 16, 2007 12:48 EDT
Edited by ogm, 16 July 2007 - 07:01 PM.
