Banks postpone senior syndication on Alliance Boots

The lead underwriters on the financing for KKR’s take private of Alliance Boots are holding back the syndication of £5bn of senior debt, while sweetening the terms of the subordinated tranches to get the deal done.

The three banks syndicating the Alliance Boots debt have temporarily suspended the  syndication of the £5.05 billion ($10.4 billion; €7.6 billion) of senior debt backing the KKR buyout and instead sweetened the terms on the junior debt, according to a banking source.

A European investment banker said this may mean the underwriting banks are planning to pursue a stabilisation agreement with a limited number of debt investors. They would buy some of the debt at a discount with a guarantee from the banks not to trade the rest within a defined period, allowing investors to sell down their positions when sentiment recovers.

The lead underwriters JP Morgan, Deutsche Bank and Unicredit have offered the junior debt with second lien margins increased to 425 basis points, up 25 basis points; and mezzanine margins at 650 basis points: 300 basis points for cash and 350 basis points for payment in kind.
The issue price on the £1 billion of second lien was at 96 percent of face value and the £750 million mezzanine tranche was priced at 95 percent.

One banker reacted with disbelief. He said: “The terms are quite extraordinary. They’ve clearly flexed it and it’s priced to sell. The banks must be very serious about trying to shift it and it will be interesting to see who bites on it at such a discount.”

Another debt investor said: “It is indicative how quickly the market has changed. A month ago this would have flown.”

Call protection at two years on the second lien and three years on the mezzanine is unchanged.

The lead underwriting banks declined to comment.