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The $29-billion leveraged buyout of payment processor First Data Corp. will proceed as planned, a spokesperson for the huge processor says, even though the private-equity firm leading the buyout acknowledged Monday that recent market events could make its future prospects riskier. New York City-based Kohlberg Kravis Roberts & Co.'s statement came in an amended registration document it filed with the Securities and Exchange Commission related to its own planned initial public stock offering. In addressing risks to KKR's business, the filing says: “Recently, the cost of financing leveraged buyout transactions in the public capital markets has increased significantly, which may adversely impact the returns of our leveraged-buyout transactions and our ability to finance future transactions.” The “recent events” to which the filing refers started with investor concerns about rising defaults in subprime mortgages, which in turn have made mortgage-backed securities more difficult to sell to investors and have led to the bankruptcy of some mortgage lenders and retrenchments at others. The worries have spread to other parts of the economy, making it harder for private-equity firms such as KKR that rely heavily on debt to get financing from banks to make new deals. But the First Data buyout announced April 2, shortly before the subprime worries started grabbing headlines, still is on track to close by Sept. 30 as planned, according to a spokesperson. First Data shareholders approved the deal two weeks ago (Digital Transactions News, July 31). “We can't comment on KKR's filing,” the spokesperson says. “That said, we still expect our transaction to close in the third quarter.” A KKR spokesperson would not comment. Analysts say that, the market turmoil aside, they still see a solid company in Greenwood Village, Colo.-based First Data, with strong cash flows. “The company has been performing pretty good of late, the near-term outlook is pretty positive,” says Dave Novosel, senior investment-grade analyst at Gimme Credit, an independent, New York City-based bond-rating firm. Despite First Data's solid fundamentals, however, the KKR buyout is not assured because of market conditions. “It's hard to handicap,” Novosel says. “With First Data would I say there's a better than 50% chance?yes, at this point. Is it close to 100? Probably not.” Because of its huge size, KKR might be forced to change the buyout's equity mix, covenants, or other particulars in order to make it palatable to investors, adds Brett Horn, an analyst at Chicago-based Morningstar Inc., an independent financial research firm. “There's been a lot of push-back on these highly leveraged buyouts,” he says. Indeed, KKR's filing says that, “If conditions in the debt markets do not become more favorable to us in the near term, we may need to rely on financing commitments provided directly by investment banks or other sources in order to consummate pending transactions or finance future transactions. Such financing may be significantly more costly, with terms that may be significantly more restrictive, than financing that was, until recently, available to us in the public capital markets.” Horn says, however, that he ultimately expects the deal to close because of First Data's strong financials.
