Barclays holds on to AA Saga, Boots loans

The £10.4 billion (€11.9 billion; $15.5 billion) leveraged loan book of Barclays Bank, the UK’s second largest bank, is dominated by two private equity deals, both done at the height of the credit bubble. Loans connected to the buyout of Alliance Boots and the AA Saga merger account for 47 percent of Barclays’ leveraged finance exposure.

In the summer of 2007, Kohlberg Kravis Roberts took UK drug store chain Alliance Boots private in a £12 billion deal – then Europe’s largest to date – while Permira- and CVC Capital Partners-backed motoring organisation the AA and Charterhouse-backed insurance group Saga were brought together in a £6 billion merger.

Due to their timing, their size, their debt levels, the brand names involved and the cost-cutting measures taken, the two deals came to embody much of the debate around the role of private equity in the UK economy. The onset of the credit crunch in August 2007 made it difficult for lending banks to syndicate the loans connected to the deals.

Barclays: buyouts on the books

Barclays’ European leveraged loan “portfolio is well spread by industry and region, however, 47 percent of the overall portfolio now relates to Alliance Boots and AA Saga”, Robert Le Blanc, Barclays group risk director, said in the banking group’s annual results presentation this morning.

“Clearly we have more of these loans than we had intended, but the credit performance of those companies continues on their original business plans and I believe that the better banking decision is to retain these loans rather than force a sale into an unwilling market,” he added.

The bank reported that, following the repayment of loans worth £3.1 billion relating to the $27.5 billion buyout of US telecoms business Alltel at par in January 2009, its leveraged loan book balance stands at £10.4 billion.

At group level, Barclays reported pre-tax profits of more than £6 billion for 2008, a figure which included £2.41 billion in gains from the acquisition of failed bank Lehman Brothers’ North American operations.