This isn't the first article of a kind that I see.
Blackstone + Goldman announced they are buying distressed debt.
Citadel + JPM announced
Fortress probably doing it too.
Apollo
And now KKR.
Both Fortress and Blackstone have raised a boatload of cash lately.
I'm going to bet these guys will make a boatload of money buying debt for pennies from deleveraging hedgefunds.
Either way....
http://www.businessw...ampaign_id=yhoo
KKR: Cashing In on Credit Woes
Private equity giant Kohlberg Kravis Roberts has a plan to use the credit market meltdown to make money for investors
by Matthew Goldstein and David Henry
Henry Kravis and his colleagues at private equity behemoth Kohlberg Kravis Roberts have cooked up a bold plan to profit from the credit market woes—a mess that's largely due to the excesses of leveraged buyout (LBO) shops, especially KKR itself. And it wants some of its wealthy clients to partake, too.
KKR executives are raising at least $1 billion from investors for an existing KKR-managed hedge fund. The goal is to snap up bargains from some of the $300 billion in junk bonds and high-yield loans weighing on Wall Street banks that have promised financing for a gaggle of mega-LBOs. With many of those bonds and loans expected to be available for a song amid the market distress, KKR figures it can generate a fat profit down the road once the "anxiety in the debt markets" ebbs and the debt rises in value.
So confident is KKR of a sharp rebound in the corporate credit market, it's telling prospective investors in the KKR Strategic Capital Fund they can expect to reap hefty returns. An August marketing brochure for the new fund-raising drive by the KKR fund states, "Unprecedented opportunity to invest in current corporate credit 'meltdown' and earn estimated gross returns in excess of 20%." The 24-page circular continues, "Opportunity exists due to credit market technical issues, not deterioration in credit fundamentals."
Moving Into Debt Investing
In all, the hedge fund seeks to raise $2.5 billion in new financing. About $1.5 billion will come from KKR and various affiliated entities. But the fund's real buying power could reach $12.5 billion with the use of borrowed money. Prospective investors have until Sept. 14 to sign up with the fund, which had $3.3 billion in assets under management as of June 30. KKR declined to comment on the new fund-raising initiative.
Though known primarily for its private equity investments, KKR created a credit investment affiliate, KKR Financial Advisors, in 2004, which will manage the Strategic Capital Fund. The unit took in $81 million in fees in 2006, twice as much as the year before, and more than one-fifth as much as the firm's private equity fees, according to a recent filing KKR made with the Securities & Exchange Commission. Shortly after the venture was formed, co-founder Kravis told potential investors that the firm was moving into debt investing as a way to make more money from the knowledge it was already acquiring in equity buyouts.
KKR is not the only private equity firm looking to cash in on the credit crunch that has brought the buyout boom to a screeching halt and wreaked havoc on the stock market over the past month. Blackstone Group (BX) President Tony James, in an Aug. 13 conference call with analysts, said, "We are also starting to look at some of these debts trading at distressed levels, which are not distressed credits, for companies we worked on."
KKR's Leg Up
Apollo Investments (AINV), the publicly traded investment management arm of buyout shop Apollo Management, has been buying up LBO debt that's selling at discount. So too is an affiliate of TPG, the former Texas Pacific Group. A number of hedge funds are also said to be eyeing the market for discounted LBO debt.
KKR's pitch is that it has a big leg up over the competition when it comes to shopping for LBO debt, namely that fact that much of the funding backlog is for buyouts which KKR engineered or bid on. The marketing material claims that 80% of the pending LBO financing involves deals where KKR is either the pending buyer, knows the company well, or knows its industry and competitors.
Roughly one-quarter of the $300 billion in outstanding buyout financing is for pending deals led by KKR, such as the planned acquisition of credit-card processor First Data (FDC), Texas-based utility company TXU (TXU), and higher education provider Laureate Education (LAUR). Since Mar. 31, KKR has announced 11 LBOs worth $140 billion, of which three deals worth $84 billion are still pending, according to KKR filings to the SEC. .............
Edited by ogm, 21 August 2007 - 12:12 AM.
