Leveraged buyouts, like the $6.3 billion deal to take Kinetic Concepts Inc (NYSE:KCI) private, are as expensive as they’ve been all year, due to ongoing uncertainty about the global economy.
Average monthly interest rates on institutional leveraged loans, the debt used to finance LBOs, rose to 491 basis points more than benchmarks in July, according to Bloomberg News – up from a February low of 378 basis points.
The upshot for would-be LBO dealmakers is an extra $11.3 million in annual interest for every $1 billion borrowed, adding nearly $71.2 million to Apax Partner’s LLP’s nut for the KCI deal.
Apax has already landed commitments for the deal representing a healthy percentage of the $10.3 billion banks have agreed to shell out to finance some $14 billion worth of buyouts, according to the news service. It’s the biggest deal of its stripe since Lehman Brothers Holdings Inc. folded up its tents in September 2008. New York-based private equity player Apax plans to fund the buyout with $4.95 billion in loans and bonds, including $2.15 billion of notes and a $2.6 billion term loan.
In another health care LBO, Blackstone Group LP plans to back its $3 billion acquisition of Emdeon Inc. with a $1.2 billion term loan and up to $750 million in notes, according to Bloomberg. Bank of America Corp., Barclays Plc and Citigroup Inc. agreed to pony up a $750 million bridge loan to cover the balance not covered by the note offering and a $125 million revolving credit line for Emdeon.
And TPG Capital is funding its $1.97 billion buyout of blood screening company Immucor Inc. with a $600 million “covenant-lite” term loan – meaning less protection for lenders than traditional bank debt, according to the news service – and $400 million in senior notes.
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