An amendment filed today in connection with Kohlberg Kravis Roberts’ planned initial public offering highlighted the rising cost of financing leveraged buyout deals, which it said may adversely affect KKR’s pending and future transactions, as well as returns for private equity funds.
“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,” the filing says.
The filing explains that in many of KKR’s private equity investments, “indebtedness may constitute 70 percent or more of a portfolio company’s total debt and equity capitalization, including debt that may be incurred in connection with the investment”.
Such investments are “more sensitive to declines in revenues, increases in expenses and interest rates and adverse economic, market and industry developments”.
Returns for its heavily leveraged funds are at risk if KKR is unable to secure debt with attractive terms, it warned.
“Availability of capital from the high-yield debt markets is subject to significant volatility, and there may be times when we might not be able to access those markets at attractive rates, or at all, when completing an investment,” the filing said.
The filing also confirmed previous reports that the US Department of Justice’s Antitrust Division requested documents and “other information” from the buyout firm in connection with an ongoing investigation into club deals.
Last fall the DOJ began investigating possible collusion in club deals, and reportedly sent letters to firms including KKR and Silver Lake, according to an October Wall Street Journal story.
KKR said it is fully cooperating with the investigation, according to the filing.
A spokesman for KKR declined comment.