This is huge news (however predictable). I believe that two of the major items to observe to determine if the party of the last few years can continue are these LBO loans and whether ARM homeowners can Refi. If those things happen, that means that the debt investor freeze is pretty much over and things move forward. If not, it means things are about to get pretty ugly.
The Buyout deal isn't dead... the issue is whether the Banks who are on the hook for loan committments to fund the deal will be able to sell the bonds and loans to investors. With the existing terms that KKR has refused to materially modify , investors won't buy the debt. But KKR has little motivation to increase the interest on the debt , increase the fees to the Banks or drop toggle components since the Banks are still committed to fund the deal.
carlomagno: I believe the breakup fee is payable by KKR to First Data, and in another case or maybe this one the banks offered to pay it but KKR refused. I think the problem for the banks is that there isn't a way for them to get out of this, if KKR holds their feet to the fire. Toasty.
I thought the banks had a possibility to pay in order to walk (independently of any commitment KKR may have towards FDC). Apologies if I misunderstood.
KDP is advising clients to pay no more than 94 cents on the dollar. That would produce a floating interest rate of 10.75% on the loans, or roughly 500 basis points over Libor, Lee said.
Banks get fees for helping to finance LBOs, which are usually about two or three cents on the dollar, Lee and others said.
If the First Data loans are sold at 94 cents on the dollar, that would leave the banks with a loss of between three and four cents on the dollar. On a $14 billion loan deal, that translates to a loss of $420 million to $560 million.
That estimate doesn't include the $8 billion in high yield bonds, which are also due to be sold as part of the First Data deal. Selling those may be more difficult than the loans, KDP's Lee said.
Glorious news! First Data will maybe stay as a low-debt, independent, successfully operating company!
Instead of some debt-riddled, eviscerated shell.
Chuck | 09.13.07 - 7:32 am | #
Chuck,
I hope you are right but I worry that you are not. As an FDC employee, I would hope so but I think it's still alive, or to push the metaphor, still on the operating table. This deal under this environment definitely means expenses will be slashed in the future, and that translates directly into jobs lost. Management sold it to us as a great new beginning, but no, most did not really believe it; they just felt powerless. If the economy went gangbusters and trundled along its formerly merry way, I'd have been less worried. That didn't happen, so I would much rather the deal die. Like I said, though, I think it's alive -- just in heavy renegotiations.
When FDC came in and bought out the little company I worked for they told us all that they were buying us for the people. Computers are cheap, what we want is the people. That didn't last long, a couple of years working for FDC and they decided to merge us into the corp platform and lay most of the people off.
Don't listen to what they say, watch what they do.
Don't listen to what they say, watch what they do.
Housing Novice | 09.13.07 - 10:33 am | #
Housing Novice,
But they are such nice people! . . .
I'm watching the best I can, and dusting off the old resume. Looking for a new job in a slack economy doesn't sound like much fun, but if that's what it takes.
So if the losses are $450-560mm on FD + $8b in HY, and Citi has up to 40% of this mess, they coud lose $200mm on this deal alone plus their part o the pier?
"Buddy: the break-up fee is only $100 mln?! If that's correct, what are the IB's waiting for to walk away from this deal? Pay-up guys!" - Carlomagno
I'm too old to be trusting my memory. Here's InvestmentNews putting the penalties at $700M. And suggesting that KKR has been so good for the banks' bottom lines that they are hesitant to walk.
Alec: at least that based on KDP's reckoning, since the $450-560mm doesn't include potential losses on the $8bn HY (which may close to double the potential loss: "much more difficult to sell", so clearly suggests they'll loose more than ยข3-4 on the dollar).
Buddy: thanks. If KDP's numbers are correct, and assuming the losses on the $8bn of bonds are of a similar order of magnitude as the losses on the $14bn of loans) that suggests the decision whether to walk or not is a marginal call (assuming the IBs can walk, which I'm now not sure about).
The prepayment penalty, of $9,000, expired in just a year.
A prepayment penalty that ended after 1 year isn't bad at all. Given how interest rates behave and knowing the costs of a refi( NO FEE refi is a load of baloney as ne ful wd no ) one should expect to hold the mortgage for 1 year at least, shdn't one ? So the prepayment penalty shouldn't arise at all.
This isn't a prepayment penalty illustrative anecdote in my book ( but this sentence is illustrative of computerese English).
I find it amusing that the Investment News story states that the deal is underwritten by "Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, The Goldman Sachs Group Inc., HSBC Holding PLC, Lehman Brothers Holdings Inc. and Merrill Lynch & Co. Inc." but that if they walk "Presumably, they will never work for KKR again if they fall down on this deal".
OK, how many other banks are capable of taking on this kind of deal? Whatever the answer may be, it's an awfully small pool of talent to rely on.
I don't think this deal is dead. For everyone who is saying that the banks won't let the deal go through, I have two questions for you:
1. Do you really and honestly believe the banks can say "NO" to this deal? Honestly?
2. Yes, Credit Suisse is the main bank involved in this, but did anyone here bother to check the history of the executives at KKR and First Data?
Well, you may be surprised but both are connected through common ties to Suisse Credit. In fact, both of these companies have numerous strong ties with each other through third companies, especially Citigroup and Safeway and the CFR. Check out News Visual's article, some info that most people don't know about The page cannot be found. You should also remember that KKR HAND PICKED Michael Capellas to be First Data's CEO, check out this article The page cannot be found
And for the KKR-TXU deal, sorry but those two also have some pretty strong connections The page cannot be found.
And if you think that connections like these don't matter, that only profits and the bottom line matter, well 1.) you obviously haven't heard of networking and 2.) I'm glad you're not my financial advisor.
C'mon guys, let go... just admit this deal is dead.
Moin
As recently as April, buyout legend Henry Kravis proclaimed a "golden age" of private equity
SCHADENFREUDE!
Does anybody know whether there is a MAC clause on this deal or what the break-up fee might be?
I think that KKR will fight to the death to keep this deal (and TXU) alive, as it will set the tone for the $200/$300 bn that's in the pipeline.
What happens when an M&A falls through, aside from the bankers not creating new debt to roll over?
If the marked entity was vulture bait what then?
If the mark was a going concern what?
Is this any more or less than the financial economy getting into reason?
My heart goes out to Henry Kravis and the gang over at KKR, it really does.
What a shame; poor guy, it's just really sad.
Glorious news! First Data will maybe stay as a low-debt, independent, successfully operating company!
Instead of some debt-riddled, eviscerated shell.
OK the big stradle question:
Are we going to breal 1490, 1515 on the S&P ?
Or another way to ask it:
Dow 15,000 or 12,000 ? (or even 11,000)
I don't think we will stay range bound in the near futur and have no idea which way it goes.
This is huge news (however predictable). I believe that two of the major items to observe to determine if the party of the last few years can continue are these LBO loans and whether ARM homeowners can Refi. If those things happen, that means that the debt investor freeze is pretty much over and things move forward. If not, it means things are about to get pretty ugly.
First Data and Commercial Paper are two most important things to watch
The Buyout deal isn't dead... the issue is whether the Banks who are on the hook for loan committments to fund the deal will be able to sell the bonds and loans to investors. With the existing terms that KKR has refused to materially modify , investors won't buy the debt. But KKR has little motivation to increase the interest on the debt , increase the fees to the Banks or drop toggle components since the Banks are still committed to fund the deal.
"Does anybody know whether there is a MAC clause on this deal or what the break-up fee might be?" - Carlomagno
WSJ reported it as $100M a few weeks ago.
What was Mervyn King saying yesterday?
Bank of England Relaxes Deposit Rules to Spur Lending (Update3) - Bloomberg.com
Bank of England Relaxes Deposit Restrictions to Spur Lending
Buddy: the break-up fee is only $100 mln?! If that's correct, what are the IB's waiting for to walk away from this deal? Pay-up guys!
(Although that would definitely mean the music stops playing and quite a few people will be left without a chair... hmmm...)
Isn't this the deal that "HAD" to go through? according to the MSM?I wonder how joe 5pack will read the headlines.
KKR must count how many balls it has once more
carlomagno: I believe the breakup fee is payable by KKR to First Data, and in another case or maybe this one the banks offered to pay it but KKR refused. I think the problem for the banks is that there isn't a way for them to get out of this, if KKR holds their feet to the fire. Toasty.
I thought the banks had a possibility to pay in order to walk (independently of any commitment KKR may have towards FDC). Apologies if I misunderstood.
Interesting numbers:
KDP is advising clients to pay no more than 94 cents on the dollar. That would produce a floating interest rate of 10.75% on the loans, or roughly 500 basis points over Libor, Lee said.
Banks get fees for helping to finance LBOs, which are usually about two or three cents on the dollar, Lee and others said.
If the First Data loans are sold at 94 cents on the dollar, that would leave the banks with a loss of between three and four cents on the dollar. On a $14 billion loan deal, that translates to a loss of $420 million to $560 million.
That estimate doesn't include the $8 billion in high yield bonds, which are also due to be sold as part of the First Data deal. Selling those may be more difficult than the loans, KDP's Lee said.
First Data LBO may be costly for banks involved - MarketWatch
Glorious news! First Data will maybe stay as a low-debt, independent, successfully operating company!
Instead of some debt-riddled, eviscerated shell.
Chuck | 09.13.07 - 7:32 am | #
Chuck,
I hope you are right but I worry that you are not. As an FDC employee, I would hope so but I think it's still alive, or to push the metaphor, still on the operating table. This deal under this environment definitely means expenses will be slashed in the future, and that translates directly into jobs lost. Management sold it to us as a great new beginning, but no, most did not really believe it; they just felt powerless. If the economy went gangbusters and trundled along its formerly merry way, I'd have been less worried. That didn't happen, so I would much rather the deal die. Like I said, though, I think it's alive -- just in heavy renegotiations.
son of zinger,
When FDC came in and bought out the little company I worked for they told us all that they were buying us for the people. Computers are cheap, what we want is the people. That didn't last long, a couple of years working for FDC and they decided to merge us into the corp platform and lay most of the people off.
Don't listen to what they say, watch what they do.
Don't listen to what they say, watch what they do.
Housing Novice | 09.13.07 - 10:33 am | #
Housing Novice,
But they are such nice people! . . .
I'm watching the best I can, and dusting off the old resume. Looking for a new job in a slack economy doesn't sound like much fun, but if that's what it takes.
Re: pier losses
So if the losses are $450-560mm on FD + $8b in HY, and Citi has up to 40% of this mess, they coud lose $200mm on this deal alone plus their part o the pier?
oofah
"Buddy: the break-up fee is only $100 mln?! If that's correct, what are the IB's waiting for to walk away from this deal? Pay-up guys!" - Carlomagno
I'm too old to be trusting my memory. Here's InvestmentNews putting the penalties at $700M. And suggesting that KKR has been so good for the banks' bottom lines that they are hesitant to walk.
First Data LBO puts Wall Street firms in vise - Investment News
Alec: at least that based on KDP's reckoning, since the $450-560mm doesn't include potential losses on the $8bn HY (which may close to double the potential loss: "much more difficult to sell", so clearly suggests they'll loose more than ยข3-4 on the dollar).
Buddy: thanks. If KDP's numbers are correct, and assuming the losses on the $8bn of bonds are of a similar order of magnitude as the losses on the $14bn of loans) that suggests the decision whether to walk or not is a marginal call (assuming the IBs can walk, which I'm now not sure about).
From the article
The prepayment penalty, of $9,000, expired in just a year.
A prepayment penalty that ended after 1 year isn't bad at all. Given how interest rates behave and knowing the costs of a refi( NO FEE refi is a load of baloney as ne ful wd no ) one should expect to hold the mortgage for 1 year at least, shdn't one ? So the prepayment penalty shouldn't arise at all.
This isn't a prepayment penalty illustrative anecdote in my book ( but this sentence is illustrative of computerese English).
-K
I find it amusing that the Investment News story states that the deal is underwritten by "Citigroup Inc., Credit Suisse Group, Deutsche Bank AG, The Goldman Sachs Group Inc., HSBC Holding PLC, Lehman Brothers Holdings Inc. and Merrill Lynch & Co. Inc." but that if they walk "Presumably, they will never work for KKR again if they fall down on this deal".
OK, how many other banks are capable of taking on this kind of deal? Whatever the answer may be, it's an awfully small pool of talent to rely on.
sk - you're in the wrong thread.
re: Carlomagno
Yup..
pearls before the wrong swine etc.
Thanks.
-K
PE firms are now raising funds to buy up the (now) distressed debt which they had floated to purchase the companies.
These guys have no shame.
Sing it Sanjay.
I don't think this deal is dead. For everyone who is saying that the banks won't let the deal go through, I have two questions for you:
1. Do you really and honestly believe the banks can say "NO" to this deal? Honestly?
2. Yes, Credit Suisse is the main bank involved in this, but did anyone here bother to check the history of the executives at KKR and First Data?
Well, you may be surprised but both are connected through common ties to Suisse Credit. In fact, both of these companies have numerous strong ties with each other through third companies, especially Citigroup and Safeway and the CFR. Check out News Visual's article, some info that most people don't know about The page cannot be found
. You should also remember that KKR HAND PICKED Michael Capellas to be First Data's CEO, check out this article The page cannot be found
And for the KKR-TXU deal, sorry but those two also have some pretty strong connections The page cannot be found.
And if you think that connections like these don't matter, that only profits and the bottom line matter, well 1.) you obviously haven't heard of networking and 2.) I'm glad you're not my financial advisor.
And for those who think the KKR-
NY Times 9/13/07
K.K.R. and Banks Said to Dispute First Data Terms
K.K.R. and Banks Said to Dispute First Data Terms - DealBook Blog - NYTimes.com