KKR Fund-Raising Plan May Hurt Fund Performance
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Kohlberg Kravis Roberts & Co., the private-equity firm that plans to raise $1.25 billion in an initial public offering, said the recent jump in borrowing costs for leveraged buyouts may hurt the performance of its funds.
The cost to issue high-risk, high-yield debt has “recently increased significantly” and the New York-based firm may need to rely on investment banks to fund transactions, KKR said in a filing with the U.S. Securities and Exchange Commission yesterday. Blackstone Group LP, manager of the world’s largest private-equity fund, also cited “more challenging financing” when it announced earnings yesterday.
“More costly and restrictive financing may adversely impact the returns of our leveraged-buyout transactions and, therefore, adversely affect our results of operations and financial condition,” KKR said in its filing.
Investors, wary of risk after the collapse of the subprime-mortgage market, are shunning bonds and loans used to pay for buyouts including KKR’s planned takeover of British pharmacy chain Alliance Boots Plc.
The extra yield investors demand to own non-investment-grade corporate bonds rather than Treasuries has climbed to 412 basis points from a record-low 241 on June 5, Merrill Lynch & Co. data show. A basis point is one one-hundredth of one percent.
About $330 billion in bonds and loans for announced deals remain unsold, according to an August 8 estimate from Citigroup Inc. analyst Prashant Bhatia.
Private-equity executives and investment bankers are debating how long it will take lenders to sell that debt. The president of Blackstone, Tony James, said yesterday that it’s unlikely to happen in the near term.
