£500m Boots debt to be sold today

The underwriting banks have provided buyers of quantities of more than £100m with a financing package which could secure them an internal rate of return of around 20 percent over four years.

The syndicate of banks backing Kohlberg Kravis Roberts’ Alliance Boots deal is close to selling more than £500 million (€628 million; $969 million) of senior debt, according to a potential investor in the debt.

Alliance Boots: more than
£500m debt being sold

The investor said the debt would be sold at 91 percent to face value, and would be provided with an attractive financing terms to those sellers who bought more than £100 million of debt. This financing package is at between 50bps to 100bps over Libor, while the debt is valued at 300bps over Libor. The package will provide block bidders with around a 20 percent internal rate of return over four years should they take up the debt.

Banks are incentivised to provide this package for accounting reasons as it effectively allows them to limit write-downs on the debt to 91 percent. The £100 million or more holding will be kept off market and so the banks will not be forced to value the debt on a “fair value basis” according to the fluctuations of the secondary market.

The banks have initially come to market with £500 million, but they are likely to scale this up due to demand, the investor said. He said the syndicating banks were not selling £9 billion of debt as reported in today’s Financial Times.

KKR Financial, the debt investment arm of the global buyout firm, is one of the potential buyers, according to KKR’s spokeswoman.

The Alliance Boots deal’s lead arrangers Deutsche Bank, JPMorgan and Unicredit could not be immediately reached for comment.