Terms for the $6.3 billion leveraged buyout of Kinetic Concepts Inc. (NSYE:KCI) are in flux once again as the debt crisis in Europe roils credit markets.
KCI agreed in July to a $68.50-per-share LBO by Apax Partners and a pair of Canadian pension funds. The London-based PE firm and its partners planned to finance the buyout with about $5 billion in debt, backed by lenders Bank of America Corp., Credit Suisse Group AG and Morgan Stanley.
The transaction was to have included a $2.6 billion term loan and a $200 million revolving credit line, plus a $1.25 billion bridge loan and $900 million in senior unsecured bonds.
Last week the company cut the term loan to $2.2 billion and boosted the secured notes by a commensurate amount, to $1.65 billion. KCI would then have sold the loan at about 96 cents on the dollar, aiming to boost investors’ returns but cutting into its own proceeds.
Now the $2.6 billion loan is also being scaled back to $1.65 billion, an anonymous source told Bloomberg. The $900 million bond offering is being delayed to boot, but the $1.65 billion worth of secured debt is still on track, according to "a person with knowledge of the transaction," the news service reported.
If it’s consummated as expected in early November, the deal will be the largest LBO since the Lehman Brothers debacle froze the credit markets in 2008. With Greece teetering on the edge of default, those markets are running scared again – junk bonds have lost 8.2 percent since July and below-CCC-grade debt has plunged 15 percent.
Moody’s Corp. (NYSE:MCO) slapped a “B3” rating on KCI’s $1.65 billion in secured notes and a "Caa1" rating on the unsecured debt; Standard & Poor’s gave the secured debt a "B" and a "CCC+" for the unsecured loans.
For its part, KCI said it expects to post third-quarter profits of $89 million to $93 million (up 4 percent to 5 percent) on sales of $529 million to $533 million (a 17 percent to 23 percent increase).