Plans have hit a snag to start marketing $24 billion in debt this week to fund the leveraged buyout of Greenwood Village-based credit-card processor First Data Corp.
Kohlberg Kravis Roberts & Co., the private-equity firm taking First Data private at $34 a share, may push any debt sale into next week as it continues to haggle with its investment banks, Bloomberg News reported Thursday.
If so, that would make completing a deal by the Sept. 30 deadline that KKR and First Data executives have set unlikely, observers said.
KKR faces a $700 million breakup fee if it walks away from the deal, which would have to wrap up by December or January if First Data were to grant an extension.
KKR’s investment banks, led by Credit Suisse Group, are expected to hold $19 billion of the debt on their books and sell only $5 billion to the public, the WSJ Deal Journal reported.
The banks face $1.5 billion in paper losses based on the 8 percent discount the market seems likely to demand, the report stated. Their fees in the deal were expected to come in at around $500 million.
“Somebody is left holding the bag, and it’s the banks,” said Jerry Paul, a merger- arbitrage hedge-fund manager with Quixote Capital Management in Greenwood Village.
First Data, which employs about 2,000 people in the state and 26,100 globally, shouldn’t be directly affected, he said.
Stock investors left First Data shares relatively flat at $33.39, up $0.01 a share in trading Thursday.
Although KKR could play hardball with its bankers, whom it has paid generously over the years, it wants to avoid harming them as it tries to get other large leveraged- buyout deals through the pipeline, including a $32 billion purchase of Texas utility TXU.
KKR already gave the investment banks a concession by adding a covenant to guarantee debt-holders a certain level of income from First Data, a move designed to make the debt more marketable.
Last month, Deutsche Bank and JP Morgan Chase & Co. failed to sell $12 billion in loans to fund KKR’s purchase of Alliance Boots, a United Kingdom pharmacy chain, despite discounting the debt 5 percent.
More than $320 billion in leveraged-buyout deals are seeking backing in an unsettled credit market, which has become more risk-averse after rising mortgage defaults and a glut of commercial-debt issues.
“People are looking to the First Data deal to see whether or not it can be successful. It will be a barometer for the rest of the deals,” said Brent Olson, research director at Three Peaks Capital Management, a Greenwood Village investment firm.
Denver Post wire services contributed to this report.
Staff writer Aldo Svaldi can be reached at 303-954-1410 or asvaldi@denverpost.com.
