KKR Cancels $1.4 Billion Sale of Loans for Maxeda LBO (Update3)
By Cecile Gutscher and John Glover
July 16 (Bloomberg) -- Kohlberg Kravis Roberts & Co. canceled plans to sell 1 billion euros ($1.4 billion) of loans for Dutch retailer Maxeda BV as investors shun risky debt.
The deal is the third to be postponed or restructured by KKR in as many weeks as losses from the U.S. subprime mortgage rout make investors wary of financing leveraged buyouts. 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.
KKR will use the loans to cut financing costs for Maxeda, the biggest operator of home-improvement stores in the Benelux countries, following its LBO in 2004. The debt replaces 275 million euros of high-yield bonds paying 7.875 percent in annual interest. Citigroup and ABN Amro are charging as much as 3 percentage points over the European interbank offered rate on the new loans.
`Nervousness'
``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.
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.''
Financing Pulled
London-based buyout firms Candover Investments Plc and Cinven Ltd. last week postponed their financing for publisher Springer Science+Business Media GmbH in Berlin, according to International Insider.
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.
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