The cost of financing leveraged buyouts is rising after last week’s tumble in U.S. Treasurys pushed yields on 10-year notes above 5 percent.
Hub International Ltd., a Chicago-based insurance broker being purchased by Morgan Stanley and Apax Partners Worldwide LLP, cut the size of a planned $790 million bond sale and boosted the interest rate by a quarter percentage point Friday. South African retailer Edgars Consolidated Stores Ltd. increased the yield on $1.58 billion of notes used to finance its acquisition by Bain Capital LLC the same day.
Bain, based in Boston, Kohlberg Kravis Roberts & Co. in New York and dozens more private-equity firms have relied on low-cost debt to finance $1.4 trillion of takeovers since mid-2004. Now, yields are rising just as they sell bonds and loans for some of the biggest deals, including the $32 billion takeover of Dallas-based utility TXU Corp. and the $26 billion purchase of First Data Corp., a Greenwood Village-based credit-card payment processor.
“Getting deals done in the short term is going to be harder,” said Simon Ballard, global credit strategist in London at ABN Amro Asset Management, which manages $280 billion.
