KKR plays hard ball and Wall St. winces
NEW YORK (Reuters) - Kohlberg Kravis Roberts & Co., the legendary leveraged buyout firm known for its tough deal tactics, is living up to its image, to the growing frustration of Wall Street.
KKR, with four major buyout deals in the debt pipeline, is refusing to budge on lending terms agreed to with investment banks, even as debt investors show a weakening appetite.
That tough stance amid shaky debt markets means banks will have to shoulder all the risk and perhaps take significant losses on the massive loans.
With other private equity shops willing to renegotiate with banks, KKR's position is starting to fuel ill-will with Wall Street, sources close to the firm say.
Bitter bankers are hardly what KKR wants in the days before its planned initial public offering.
Of course, if the LBO climate steadies or returns to being robust, then any bad feelings will quickly be forgotten.
But should the debt markets continue to decline, some on Wall Street think KKR's hard ball tactics could come back to bite them.
"If they keep giving it to investment banks, nobody's going to want to write a commitment letter," said one banker, who did not want to be named.
KKR's belief is that the banks agreed to loan them the money, end of story, said the sources; if the banks have trouble syndicating the debt, too bad.
KKR declined to comment.
What makes KKR's situation especially sensitive, however, is the volume of deals it has in the funding pipeline. Year-to-date, KKR has announced more buyouts than any other firm: 11 deals worth $121.1 billion, according to Dealogic.
That volume has created a bottleneck of KKR deals needing debt investors, at a tough time for LBO financing. That, in turn, has left Citigroup (C.N) and other Wall Street giants currently holding a pile of KKR-related paper, sources say.
KKR's IPO prospectus hasn't helped relations with banks any, as the document makes clear that its building a capital markets group to take banks out of the leveraged buyout process as much as possible.
HARD BALL
The firm has told the eight investment banks financing the $26 billion buyout of transaction processing company First Data Corp. FDC.N that it will not accept weaker terms, sources say. Continued...
