Saturday, August 4, 2007

It never rains but it pours

KKR unable to sell any debt for its £9bn Alliance Boots acquisition

Kohlberg Kravis Roberts was forced to scrap plans to sell even the smallest portion of debt backing its £9 billion acquisition of Alliance Boots yesterday after panicked investors refused to buy the high-risk loans. In another sign of turmoil in the credit markets, DaimlerChrysler came to the rescue of Cerberus by agreeing to lend the American private equity firm some of the cash to take Chrysler off its hands after the banks refused to lend money for the sale last week.

Posted by uncle chris @ 09:13 PM (403 views)
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6 thoughts on “It never rains but it pours

  • little professor says:

    KKR have had to abandon their plans to float on the stock market due to the crash in debt markets. Poor guys.

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  • So excuse me for being a bit dim here, but where does the debt go then ?

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  • The Bald Man says:

    Orwell the original providers reatin teh debt rather than moving to teh next deal

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  • Stoatgobbler says:

    The debt just sits on the bank’s balance sheet. The banks lend the dough to KKR, then (ideally) take those loans to KKR and sell them to investors looking for a little bit more return than they get from govvies, etc. The bank makes money from fees plus the spread between the rate paid by KKR and the rate paid to investors. The problem here is that investors now require more return than is available in the original deal, so the loans sit on the bank’s balance sheet until such time as the risk appetite of investors means that they will accept the lower return offered by this paper. Until then the bank is up the creek, and the loans are marked to market as a loss (possibly) to boot. For the banks this is a bit offputting, and so no more deals for now, and so all the puffed up equity valuations need to come down quite a bit as they were driven by poor companies looking like good private equity targets. Hasta la vista Dow (n) Jones.

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  • Hang on a minute, the debt has been taken out with the banks, ok? This debt cannot now be transferred to another holder is that what they are saying? So the £9bn is owed to whom by whom then? And how can that debtor and creditor now do anymore business then?

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  • dohousescrashinthewoods says:

    This is a death knell. When a high-profile deal blows up because the main mechanism has seized, expect the rest to follow.

    If KKR can’t sell debt (and rinse and repeat) neither can the high street banks sell (and keep selling) more and more and larger mortgages.

    This, unlike the supply of houses, actually is supply and demand at work. Lots of suply of debts to the market and a dearth of demand to buy it – a stark reversal of the situation a year ago, where the debt markets were crying out to buy more mortgage-backed debt.

    Sayanara housie.

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