Kohlberg Kravis Roberts & Co. will give purchasers of debt in First Data Corp. more protections but not a higher interest rate as it races to finance a buyout of the Greenwood Village company before month’s end.
KKR, which is raising $24 billion in debt, agreed over the weekend to give future holders of bank debt in First Data protections that the credit- and debit-card processor would maintain a certain level of income, according to press reports.
The requirement would leave First Data with less wiggle room should it falter financially in the future, but it won’t load down the company with additional interest costs upfront and should smooth the way for the deal to get financed, analysts said.
“It may be that the banks get off the hook a little bit more without quite as much pain,” said Jerry Paul, managing partner at Quixote Capital Management, a merger-arbitrage hedge fund based in Greenwood Village.
First Data is one of Colorado’s largest employers, with about 2,000 workers in Greenwood Village and 26,100 worldwide.
The First Data issue is considered a bellwether for more than $400 billion worth of leveraged buyouts that need backing in coming weeks.
Other pending multibillion-dollar deals include the purchase of student-loan provider Sallie Mae, Texas utility TXU and media giant Tribune Co.
KKR’s investment banks, responsible for funding the deal under its original terms, had pushed for more protections or covenants to make the debt more palatable to jittery investors.
Turmoil in the credit markets has made investors more cautious about risk, which is translating into higher interest rates on corporate debt and more covenants.
Debt issues that are light on covenants are being discounted by 6 percent to 8 percent from face value, said Paul, who holds First Data shares.
Adding some covenants should lower the discount that investment banks have to cover to 4 percent or 5 percent and entice a larger pool of buyers, he said.
KKR’s investment banks, led by Credit Suisse and Citigroup Inc., were expected to earn more than $500 million in fees on the deal. But they will likely have to swallow more than that to cover the higher interest rates investors are demanding since the deal was first announced in April.
Terms needed to be reached so the investment banks could begin marketing the bank debt this week. Bonds are expected to follow. It typically takes about three weeks to market such issues.
First Data and KKR declined to comment on the status of the debt offers.
Investors in First Data’s stock are growing more confident that the deal, set at a price of $34 a share, will get done. Shares in First Data closed up 7 cents at $33.29 Monday.
Denver Post news services contributed to this report.
Staff writer Aldo Svaldi can be reached at 303-954-1410 or asvaldi@denverpost.com.
