Banks Win Battle Over Private Credit to Fund KKR’s Latest Buy

(Bloomberg) -- Four banks are financing the debt package backing KKR & Co.’s acquisition of fertility treatment provider Ivirma Global, beating back the private credit firms that had also competed to bankroll the deal.

Morgan Stanley, Bank of America Corp., Deutsche Bank AG and Credit Suisse AG have underwritten around 800 million euros ($871 million) of senior term loans to back the acquisition, according to a person close to the matter who wasn’t authorized to speak publicly on the deal. Other lenders are expected to join the line up shortly and the loan will be syndicated to institutional investors around September, the person said. 

KKR, Morgan Stanley, BofA and Credit Suisse declined to comment. A spokesperson for DB didn’t immediately respond to a request for comment. 

Direct lenders, including Blackstone, had considered financing the deal but ultimately KKR opted for banks to fund the acquisition, a sign that they still have the firepower to underwrite, despite the fallout from Russia’s invasion of Ukraine bringing the European junk debt market to a virtual standstill.

Private credit has been moving into larger transactions, which would have traditionally been handled by the syndicated loan market, seeing a window of opportunity to capitalize on banks and institutional investors’ increased aversion to risk over the past few months.

KKR agreed to buy Ivirma in April, following a competitive auction process including Cinven, Nordic Capital and Carlyle Group.

The private equity giant had dual-tracked the financing process for the acquisition, an approach which has become increasingly common and seen on deals including women’s health business Theramex. 

But like Ivirma, Theramex also opted to go down the more traditional bank route in the end, and with syndications in Europe’s leveraged loan market going quite well for borrowers since reopening for business last month, the expectation is that sponsors will continue to choose banks over private credit.

Pricing on syndicated deals is tightening and is likely to continue doing so as investors get stuck in and put money to work following the initial invasion hiatus.

Recent European leveraged loans such as a 735 million-euro equivalent term loan backing the take-private of U.K.-headquartered pharmaceutical services business Clinigen closed to pay 475 basis points over Euribor at 99 original issue discount, the markdown from a bond’s face value at issuance. Typically, private credit needs at least 500 basis points to make economics work.   

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