Debt Innovations in Europe from KKR

April 4, 2009

They say nesessity is the mother of innovation. Then it’s times likes these that act as a maternity ward. In a restructuring deal that could be replicated across Europe, a private-equity consortium led by U.S. buyout shop Kohlberg Kravis Roberts has slashed the debt of Dutch semiconductor company NXP by nearly 10% after having $465 million of loans written off at no cost to the buyout firms’ equity.

Bought for €6.4 billion ($8.5 billion) in 2006, NXP sought to reduce its debt ($3.8 billion of US-denominated debt and €1.5 billion of euro-denominated debt prior to the restructuring) after revenue fell 25% last year to $979 million. 

The twist: In a restructuring, a buyout firm is typically expected to inject additional equity to reduce the level of debt in a company. Instead, the NXP restructure involved lenders writing off some of the nominal value of their junior debt in exchange for a higher place in the capital structure. This appeases lenders because, although they cut the nominal value of the debt they own, they acquire debt that is less likely to default. The higher priority debt can be higher in value on a mark to market basis than the distressed junior debt they previously owned. The restructuring reduces NXP’s interest payments by €30 million ($40 million). Pretty crafty!

This transaction is one of the first significant debt reductions involving no additional cash injections by a sponsor in Europe. It’s certain to not be the last.

Meanwhile, the Deal Professor takes a longer look at a situation back Stateside that got a bit contentious.


Henry Kravis Sees Stabilization in Banking Sector

October 16, 2008

Speaking at the Super Return private equity conference in Dubai, Henry Kravis, co-founder of KKR, said he sees the problems in the banking sector beginning to stabilize.  He also predicted consolidation in the banking industry over the course of the next year.  Kravis is convinced that private equity can be a solution to the banking crisis, not just in terms of capital which so often mentioned, but also, and perhaps more importantly, in regards to strategy and operations (which as I’ve often pointed out is the true edge of private equity even after the easy credit is long gone).  Kravis also suggested that PE firms should look at partnering with non-private equity groups when they choose to invest.

I think true stabilization in the banking and financial service sectors will only come when the various government initiatives actually get implemented.  So far it’s been a lot of political talk and papers being signed.  Most of the money has been dished out yet.  Only when the cash tap begins to flow will we see how effective these “bailouts” are.

KKR Appoints Makram Azar to Head Middle East and North Africa

September 18, 2008

KKR has just announced that HEC alumnus Makram Azar (H.1990) will be joining the firm as Managing Director and Head of Middle East and North Africa (MENA).  Makram will develop the distribution of KKR products in the MENA region and source opportunities for private equity and infrastructure transactions in selected situations. Additionally, he will explore co-investment opportunities with MENA institutions.  Congratulations!

KKR Collects $1.4B in Distributions

August 17, 2008

Last year was a good year for KKR. Here’s hoping it’s NYSE listing goes well also!

KKR Comes Up Short in Europe

August 6, 2008

Yeah, more KKR news.  It seems that each passing day brings another KKR headline.  The firm’s KKR Europe III fund is expecting a final close of $7B after an 18-month fund raising period, which is in line with the firm’s last effort in the region, KKR Europe II, but well below the $10B they had expected to raise.  While on the surface this may look troublesome, one has to take into account that large-cap deals are still painfully slow to come by and having too large a fund right now may not be in line with current market conditions, i.e. while many would instinctively wish to raise ever larger funds, that mentality may not be appropriate for the times.  Plus a $7B fund is still tremendously large for Europe.

Also, don’t ever count KKR as down.  They’re pioneers of the industry, a great firm, and garner much deserved attention (sometimes good, sometimes bad), and as business school students seeking to have successful careers in private equity after graduation we should follow the firm with much interest.  We’re certain to have more headlines to follow soon!

More on KKR Going Public

July 29, 2008

Yeah, it’s what everyone is talking about. Here is a quick read covering the KKRKPE relationship from Deal Journal.

Keeping Up with the Blackstones: KKR Going Public

July 28, 2008

KKR has announced that it will go public in Q4 of this year by acquiring an affiliated fund that is traded in Amsterdam, delisting there, and then going on the NYSE.  Not exactly the conventional route, but quite clever (though there’s much debate on whether or not KKR should actually list at all, but that’s a post for another day).

For those interested there’s a conference call scheduled for 2 PM CET that’s to be broadcast on KKR’s website.  Here are two documents worth looking at: