| NEW YORK, July 23
NEW YORK, July 23 KKR & Co LP on Tuesday
secured the cheapest borrowing rates it ever got to fund a
leveraged buyout, which could cut hundreds of millions of
dollars from interest it will pay to finance its $3.9 billion
takeover of Gardner Denver Inc, banking sources said.
With markets no longer worried that the Federal Reserve will
end economic stimulus too soon, the private equity firm borrowed
$2.425 billion in loans and $575 million in bonds for the deal
at an average blended interest rate of 4.8 percent, they said,
one of the lowest rates ever seen in leveraged buyouts.
The sources said KKR also arranged a $400 million revolving
loan facility that does not back the acquisition and will only
be drawn if Gardner Denver engages in a takeover of another
company or in another major investment.
"KKR's Gardner Denver execution is the tightest large cap
single B leveraged buyout financing ever done as measured by
total average cost of debt. Pretty amazing considering the
volatility we faced during the loan and bond syndications," said
Brendan Dillon, global head of leveraged finance syndicate at
UBS AG, who led the financing on the deal.
There have been major fund inflows into the high-yield
market since Federal Reserve Chairman Ben Bernanke reassured
markets last week that the U.S. central bank would be careful
not to withdraw economic stimulus so quickly that it threatens
the U.S. economic recovery.
Bankers said favorable financing conditions, if sustained,
could encourage more deal-making activity, and dividend payments
from companies owned by private equity firms.
Some high-yield financings were pulled in June after
investors grew worried that the Fed may taper its bond buying
program too quickly. Madison Dearborn's Yankee Candle Co, for
instance, canceled a plan to borrow to pay out a dividend.
The lead times are long for financing such deals. KKR
participated in an auction for Gardner Denver last year and
reached an agreement to buy the Wayne, Pennsylvania-based maker
of pumps and compressors in March.
Dillon said that debt investors accepted low borrowing rates
not just because of the market conditions but also because they
had confidence in Gardner Denver's credit worthiness.
"KKR is a best-in-class financial sponsor and its
industrials team has a proven track record of quickly
deleveraging other companies like Capsugel and Capital Safety.
Gardner Denver is very large and very well diversified and the
markets began to stabilize as we marketed the loan and bond,"
A KKR spokeswoman declined to comment.
KKR had assets under management of $78.3 billion as of the
end of March. Founded in 1976 by Henry Kravis, George Roberts
and Jerome Kohlberg, KKR engineered the $25 billion leveraged
buyout of RJR Nabisco in 1988. The massive deal was chronicled
in the bestselling book and later a television movie entitled
"Barbarians at the Gate."