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Kkr Banks Fail To Sell $10 Billion Of Boots Loans

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http://business.timesonline.co.uk/tol/busi...icle2976294.ece

Alliance Boots is still paying £65 million in monthly interest on £9 billion worth of debt its bankers have still to sell to investors as part of the £11 billion private equity-led takeover deal four months ago.

It has also emerged that the company's new owners, Kohlberg Kravis Roberts (KKR) and Italian billionaire, Stefano Pessina, paid £1.5 billion in dividends within days of Alliance Boots being taken private at the end of July. On August 6, a £1 billion dividend was paid followed by £550 million on August 20.

This payment was made as global credit markets began to tighten, making it difficult for the banks to find new investors to buy into the £9 billion debt used to finance the takeover deal.

So far, only £750 million worth of mezzanine debt has been syndicated, or sold on, to other investors.

It is now understood that a group of banks, led by Deutsche Bank, who underwrote the debt will restart efforts in the New Year to sell on the £8.25 billion debt that has been left sitting on their books.

Alliance Boots is paying at least 8.6 per cent in annual interest on the £9 billion which is equal to £774 million a year.

Alliance Boots said today: "The directors are satisfied with the performance of the company for the period and with its financial position at the end of the period. The directors consider the future prospects of the company to be good."

However, the company which is both a retailer and a drugs distributor, is facing a number of external pressures.

These include growing weakness in consumer spending, an Office of Fair Trading study into how drugs are distributed in the UK and the Government's recently introduced plan to cut the amount it pays British pharmacies for generic drugs.

Alliance Boots had expected the UK Government to cut £300 million off how much its pays for medicines but the final reduction reached a total £470 million, which could dent the company's profits by as much as £80 million this year.

Still not sold on!

Still not as odd as the mess M&B got themselves into.

Try telling that to Mitchells & Butlers, the All Bar One owner which looks increasingly like a rogue derivatives trader with a pub group on the side - more Nick Leeson than Bet Lynch.

Hard to believe then that further down the profit and loss account, last year's £220m surplus turned into £48m of red ink. This remarkable disappearing act was the unfortunate by-product of a deal which must have seemed a good idea at the time - setting up a joint venture with property entrepreneur Robert Tchenguiz as a first step towards putting a sensible price on M&B's undervalued pub estate.

Unfortunately, M&B was getting deep into an area for which its pint-pulling expertise had not prepared it. Increasingly twitchy banks would only stump up the cash required to fund the venture if M&B agreed to a complicated interest rate and inflation swap arrangement that would protect it from movements in the cost of money or rising prices (don't ask).

http://www.telegraph.co.uk/money/main.jhtm.../30/ccom130.xml

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Just wondering if it dont get sold on whats going to happen hey, is it bye bye boots?

It depends whether they can afford £65m per month just for the privilege of being owned by someone else. If they can't, and it takes them down, there will be riots.

Anyone know how long they could afford this for?

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Dont Boots do a borrow two loans get the third one free?

no um....

is it get the least expensive one at half the interest?

ang on

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I don't understand. When the bank that the Boots people borrowed the money from sell the debt on then the Boots people don't have to pay £65m in interest anymore?

Surely this is the bank's problem not Boots.

i borrow the money to buy a house, they borrowed the money and then placed the debt with boots.

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i borrow the money to buy a house, they borrowed the money and then placed the debt with boots.

And they will make boots pay big time, staff redundancies will be no 1 on the list. This has happened to lots of decent PLC companies, they get eaten by private equity then the bare bones are sold back into PLC land, aided and abeted by the city types of course, meantime lots of proper people lose their jobs and pensions etc.

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In a similar vein, looks like Sainsburys had the right idea to block the private equity takeover from fears they would rape the pension fund amongst other questions.

Sainsbury's profits up despite failed bid

Last Modified: 14 Nov 2007

Source: ITN

The retail chain banked interim pre-tax profits of £232 million and said a £2.4 billion growth in sales since March 2005 put it ahead of a three-year recovery plan.

Sainsbury's said 16.5 million shoppers now pass through its doors each week.

The group was the target of a failed takeover bid by Qatar-based investment fund Delta Two earlier this month, which wiped £2 billion off the value of shares in one day alone.

http://www.channel4.com/news/articles/busi...led+bid/1046962

Edited by maxwell

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And they will make boots pay big time, staff redundancies will be no 1 on the list. This has happened to lots of decent PLC companies, they get eaten by private equity then the bare bones are sold back into PLC land, aided and abeted by the city types of course, meantime lots of proper people lose their jobs and pensions etc.

Always happens, just a point from the New Labour hangover getting worse and worse. Due to CGT at this point where debt is better than profit. (The AA reached 11,000 sacked after this article in February 23 2007

http://www.guardian.co.uk/business/2007/fe.../privateequity1

Within months of buying the AA for £1.75bn, the private equity owners Permira and CVC Capital had cut 3,400 jobs.

Permira, the largest private equity group in Europe, last year bought Birds Eye from Unilever and pledged to keep workers' employment terms for at least three years. Within five months it had closed a plant in Hull at the cost of 600 jobs.

Edited by maxwell

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Just wondering if it dont get sold on whats going to happen hey, is it bye bye boots?

Not sure about bye bye boots, but I'm sure that those bankers from Deutsche Bank didn't need to visit Boots to get laxatives when the credit crunch started....

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You have to differentiate between Boots disappearing and it's shareholders getting wiped out.

In the former case, it will be because Boots' customers buy their electric toothbrushes from Tescos and its business goes down the drain.

In the latter, it will be because it cannot afford to pay it's debts, goes into receivership and either the debt gets negotiated into equity or the debtholders get first dibs on the cash in a subsequent sale.

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Not sure about bye bye boots, but I'm sure that those bankers from Deutsche Bank didn't need to visit Boots to get laxatives when the credit crunch started....

Quite. Now these loans will still be on their books at year end it will 5hag their bonus pool if they have provisioned as they ought.

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Blackstone, the world's biggest private equity group, has been forced to walk away from a $1.8bn (£906m) deal after it was unable to secure financing.

In the latest sign of contagion from the credit crunch, Blackstone could not raise debt to fund the acquisition of PHH Corp, a New Jersey-based mortgage and vehicle leasing business.

PHH - which it was buying in a joint venture with General Electric - has now demanded a $50m break fee from the private equity group as a result of the collapse.

JPMorgan Chase and Lehman Brothers told Blackstone in September that they might not be able to provide all the financing they had earlier promised, as a result of the credit crunch.

PHH - which it was buying in a joint venture with General Electric - has now demanded a $50m break fee from the private equity group as a result of the collapse.

JPMorgan Chase and Lehman Brothers told Blackstone in September that they might not be able to provide all the financing they had earlier promised, as a result of the credit crunch.

Most of the world's major banks and investment banks have been forced to curb lending as a result of the credit crunch. The collapse of the secondary debt markets has left banks unable to sell on loans to other investors, forcing them to hold the assets on their own balance sheets, which restricts their ability to do more deals.

A record $438bn (£220bn) of leveraged buyout deals were completed last year before the markets turned. Most of that debt is still sitting on banks' balance sheets. Some banks are now selling leveraged debt at knock-down prices to free up their balance sheets. JP Morgan, Citigroup, Goldman Sachs and Morgan Stanley have all offered to sell high-yield bonds and loans for as little as 90 cents in the dollar.

Tranches of debt from major UK deals, including the AA and Saga deal, as well as KKR's acquisition of Boots, are thought to be among the global backlog of loans piling up on bank balance sheets.

PHH said yesterday that Blackstone "was not able to obtain the requisite debt financing". The group added that "the board will determine in due course whether to continue to explore the company's strategic alternatives".

PHH provides white-label financial services products to a string of big names, including American Express. Under the proposed deal, GE would have bought the entire group, then sold the mortgage business in a back-to-back deal with Blackstone, leaving the huge conglomerate with PHH's vehicle leasing business. The collapse of the Blackstone financing package kills off the GE component of the deal.

"There can be no assurance that any further exploration of strategic alternatives that the board may determine to undertake will result in any agreements or transactions," PHH said in a statement yesterday.

A number of deals have fallen through since the credit crunch began to bite. Delta Two, the Qatar-backed investment fund, was forced to walk away from its proposed takeover of J Sainsbury, the supermarket chain, after its funding costs soared. British Airways and Texas Pacific Group, the private equity giant, gave up on a proposed takeover of Spanish airline Iberia in November. Cerberus, the US private equity and hedge fund group, withdrew its $8bn offer for Affiliated Computer Services in October. Read

http://www.telegraph.co.uk/money/main.jhtm.../cnblack102.xml

edit . must be half asleep info's in the article

Edited by Ash4781

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Just goes to show that Northern Rock has NO CHANCE of finding a buyer!!

Perhaps Kkr Banks should approach Richard Branson, I can see it now Virgin Boots...he could even produce his own brand of condoms!!

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On similar topic does anyone have any info on that big metal companies can't remember who bought who, Rio Tinto, Alcan etc but the borrowing figures involved were immense.

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On similar topic does anyone have any info on that big metal companies can't remember who bought who, Rio Tinto, Alcan etc but the borrowing figures involved were immense.

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Gordon Brown approved the takeover, but then of course he would Gordon is the Pensions Bandit.

No doubt the pension fund currently 1bn in the red will be robbed further in order to service the debt.

Pension trustees at Boots are preparing to go to court to block a takeover of the high street chemist in an unprecedented legal showdown with private equity buyer Kohlberg Kravis Roberts.

KKR is believed to have been advised by its lawyers that Boots trustees do not have a case in court

The tactic could result in the £11bn deal facing a lengthy delay until the pensions regulator forces a compromise between the two sides.

Trustees acting on behalf of Boots's pensioners argue that KKR needs to top up the pension scheme by £1bn in cash and securities. This is because the £8bn of debt borrowed to carry out the takeover will make the company a less reliable guarantor of future contributions.

KKR has offered to inject £900m over several years, but despite weeks of negotiating has been confident of proceeding with its take-over even if it failed to reach an agreement. Shareholders approved the take-over, which is backed by Boots management, last week.

Now lawyers acting for the trustees are understood to have concluded they can throw a spanner in the works by appealing to a court hearing on June 21 in their capacity as Boots's largest creditor.

advertisementAs is common in larger deals, KKR is hoping to structure its takeover through a court-administered "scheme of arrangement" - allowing it to cancel existing shares rather than spend an estimated £50m extra on stamp duty by buying the shares directly from Boots investors. This has left it vulnerable should the judge decide to side with the trustees. More talks are planned this week but the increasing tension between the two camps has raised the temperature considerably over the weekend. KKR is believed to have been advised by its lawyers that the trustees do not have a case in court.

The dramatic clash highlights the growing role of pension trustees in today's corporate landscape. A similar battle played a major part in the collapse of an earlier private equity bid for J Sainsbury.

It also comes amid an increasing clamour across industry for pension trustees to be replaced by professionals with a legal, actuarial or investment background.

Traditionally, pension fund trustees were drawn from the workforce of the company, to represent the staff. But there is a growing feeling that this is no longer appropriate under the new regulatory regime, where trustees have increased power and responsibilities.

Separately, The Sunday Telegraph has learned that BT has begun the search for a new chairman of its pensions trustees - and is offering a salary of £100,000 for the job.

The pay deal is 25 per cent more than that currently received by the incumbent, Sir Tim Chessels, who is due to retire from the role in December after a nine-year tenure.

The huge salary is intended to compensate for the workload and regulatory burden now carried by trustees. It comes as the former -government-owned monopoly remains locked in talks with the Department of Trade and Industry over the scale of a "crown guarantee" that underwrites the fund. Hundreds of retired engineers and factory workers are expected to make decisions based on global macro-economic factors, such as bond yield movements, and can be held to account over those decisions.

Some senior pension experts have suggested to the Government in private that the trustee system could be scrapped, particularly for smaller funds. They have also suggested the pensions regulator could be merged with the Financial Services Authority over time.

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