(Bloomberg) — KKR signed up direct lenders for its acquisition of Karo Healthcare, steering the deal away from the banks it had picked to underwrite the initial loans.
Apollo Global Management Inc. is leading private lenders after proposing an alternative to the broadly syndicated loan package that was in place, people with knowledge of the matter said.
The direct lenders, which also include Goldman Sachs Asset Management, CVC, JPMorgan Chase & Co., Jefferies and KKR’s own credit unit, signed a deal to provide about €1.1 billion ($1.3 billion) in a unitranche — a blend of junior and senior debt, according to people familiar with the matter. It will pay an interest rate margin of 475 basis points over Euribor, the people said, at an initial price of 99.5 cents, one person added.
That’s a wider spread than the bank debt on offer, but private credit allows KKR to avoid some of the tariff-fueled volatility sweeping global debt markets and sidelining some broadly syndicated deals. Direct lenders are turning the turmoil into an opportunity to seize more leveraged debt business.
Banks including Citigroup Inc., Jefferies Financial Group Inc., BNP Paribas and HSBC Holdings Plc, alongside KKR Capital Markets had lined up €1.275 billion of financing, split between around €1.1 billion of term loans and €175 million of undrawn facilities, according to people with knowledge of the matter.
The private equity firm and all of the lenders either declined to comment or didn’t immediately respond to requests for comment.
By shifting away from its underwriters and toward direct lenders, KKR is subverting usual practice in which underwriting banks also syndicate the debt. For example, Barclays Plc, Citigroup Inc. and KKR Capital Markets this month underwrote and plan to sell about $1.7 billion in debt for KKR’s acquisition of OSTTRA.
Banks have continued to underwrite buyouts this month, albeit at a slower pace given the uncertainty of on-again, off-again tariffs by the US against its biggest trading partners. Some have balked at joining lending groups, though: Morgan Stanley was among lenders to decline Karo’s underwrite, despite advising owner EQT AB on the sale and teaming up with Jefferies to provide a staple financing.
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