KKR could get its Sun debt investment back

Kohlberg Kravis Roberts & Co. could make its money back on a 2-year-old investment in Sun Microsystems, which last week agreed to be sold to Oracle Corp. in an all-cash transaction worth $5.6 billion.

The private equity firm, whose Amsterdam-listed fund KKR Private Equity Investors (KPE) invested $700 million in Sun in January 2007 for convertible senior notes, had sharply written down the value of its investment. But under the terms of the investment, a sale or change in control at Sun would require that the notes be paid to Sun “at par,” plus accrued interest, according to a person familiar with the situation.

Oracle expects the acquisition of Sun to close this summer.

KKR’s investment came in two separate tranches, each valued at $350 million. One batch of convertible notes, which pays interest semi-annually at 0.625%, is due in 2012, while the second batch, which pays interest at 0.75%, is due in 2014.

In its year-end results, KPE reported that it wrote down the value of the convertible senior notes in Sun by $167.4 million.

KKR did not return calls and emails seeking comment. Oracle couldn’t be reached immediately for comment. Sun declined to comment.

Indications are that KKR is supportive of Oracle’s proposed acquisition. In conjunction with the original debt investment, KKR was given a seat on the company’s board of directors, and, according to a joint statement by both companies, Sun’s board of directors has “unanimously approved the transaction.” —Anupreeta Das, Reuters and Ari Nathanson