(Bloomberg) - KKR&Co. Debt sales show how far Wall Street is willing to make the leveraged underwriting business slip from private credit to private credit after turmoil.
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After losing €1.1 billion ($1.24 billion) in acquisition financing mission, banks including Jefferies Financial Group Inc. and Citigroup Inc. extended their own private equity giants’ salary, agreeing to expand their low-priced revolving credit to KKR’s acquisition of KKR’s KKR’s acquisition of KARO Healthcare.
In exchange, KKR will assign them part of a deal to a private lender led by Apollo Global Management Inc. because the people on the matter said that because the matter was private, they asked not to agree. The people said the bank would make 40% of the 1.75% underwriting fee of about 40%.
Unusual arrangements suggest that efforts to maintain relationships amid market volatility can win their business later. Banks often avoid using uninclusive credit lines of negligible fees, i.e., agreements that will be used to provide capital for more profitable loans. If they offer them entirely through leverage trading, they are usually used in conjunction with more profitable maturity loans or high-yield bonds.
Now, however, Wall Street's leveraged finance desks, which broke fee-rich deals to reel in a third of investment-banking revenue in recent years, are in no mood to fritter away some of their edge like they did in 2022. After taking losses on “hung deals” back then, they came to regret their reluctance to back acquisitions and provide undrawn credit while direct lenders made inroads into their business.
"Banks are continuing to grow," said Jeremy Duffy, partner at the law firm White & Case LLP. "They are acutely aware of the advancement of private credibility and respond accordingly."
However, the 2025 Noshi yvern has already taken borrowers toward private credit funds that can get rid of volatility better than banks.
Karo's bank lenders (including HSBC Holdings) have extended about €175 million in unincluded facilities with KKR Capital Markets. What is not used is the €1.1 billion debt they promised for the acquisition of Swedish consumer health company.
People say KKR has not violated the agreement and ended up choosing a private unit, a convergence of teenagers and senior debt of the same size. More than 10 lenders including Apollo, Jefferies and CVC participated in the pricing of what is perhaps the most tense European direct loan transaction ever, despite market turmoil.
Regardless, KKR decided to pay some traditional lenders because around 10 days in early April, banks risked the riots in the turmoil before private lenders stepped in. A spokesperson for KKR, HSBC and Citi declined to comment. Jefferies' representatives did not immediately respond to a request for comment.
Now, with unapproved loans, banks may bargain, guessing they will encounter a similar situation to Carlo.
The close attention is the acquisition of Spanish waste management services business Urbaner. Private credit funds and banks are competing to underwrite packages including more than 2 billion euros in debt. At the same time, any acquisition may require a guaranteed and revolving credit line of 1.5 billion euros.
"It's not surprising that banks have a long-term view on maintaining and fostering relationships," said Sabrina Fox of Legal Training, a leveraged finance expert. "Even if it means short-term losses, the potential for long-term gains is higher."
A week's comment
At this week’s Milken College Global Conference, key players in private credit talked about their next “golden opportunity” when they looked for cheaper in the recent market spiral.
U.S. senior corporate bond sales soared to their highest level since March this week, at about $45 billion. This is the latest sign that markets are reopening after part of April was shut down due to escalating trade wars. Even companies that may face global tariff pressures, including Apple and General Motors, will take advantage of the market.
The thawed market is incentivizing banks that are locked in amid tariff turmoil in search of ways to start unloading it to investors.
Companies funded in private credit markets began showing signs of stress in the first quarter, according to the latest results of the Business Development Company.
For decades, acquisition companies have been largely taken care of by lenders when they are in trouble. Those days have passed. Many creditors are far from priorities, and even equal treatment is pushed farther and farther away.
Citigroup Inc. is offering loans to private equity and private credit groups, struggling to catch up with peers like JPMorgan Chase & Co and Goldman Sachs Group Inc., which banks have spent years off the market.
JPMorgan Chase & Co. will lead about $6.5 billion in debt financing to support private equity firm 3G Capital to buy footwear maker Skechers.
This week there were a series of famous bankruptcies:
Rite Aid Corp. filed for bankruptcy less than a year after completing the reorganization that could have surrounded the struggling pharmacy chain. The company won court approval to run an expedited process to sell customers’ prescription information to rival pharmacies as it prepares to unload or close stores.
Whigatwatchers, known for their diet plans, recognized by celebrities including Oprah Winfrey, filed for bankruptcy after struggling to compete with the rise of Ozempic and Tiktok Fitness Remants.
Synthego Corp. manufactures gene editing tools for drug developers and other researchers and plans to sell itself to its main lender, a branch of the perception consultant of a private equity firm.
Sumitomo Mitsui Banking Corp. is joining forces with asset managers at Monroe Capital and MA Financial Group to jointly complete a $1.7 billion loan transaction in the fast-growing private credit market.
On the move
Morgan Stanley Investment Management has hired Peter Campo
Mitsubishi UFJ Finance Group has hired John Clements of Barclays as head of mortgage obligations
Deutsche Bank AG hired Citigroup Inc.
Hilltop Securities has appointed Jason Lisec to lead municipal sales and transactions
Toronto, head of U.S. investment-grade credit sales and transactions - Jason Wen, who ruled the bank, will leave the company in the next few months as part of the layoffs as the top of the company's global market units has undergone a reorganization
Nomura Holdings Inc. has hired Moritz Westhoff of Bank of America to lead its U.S. interest rate business
Investment banker Gary Antenberg joins RBC from Barclays with a focus on insurance and alternative asset management clients
Matt Maloney, partner at Gramercy Funds Management, has left with hedge funds in emerging markets a decade later
- Assistance with Rheaa Rao.
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