KKR To Test Market With First Data Float

Not only is Kohlberg Kravis Roberts & Co. looking to set debt records for its buyout of First Data Corp., the offering will also act as a barometer for other recently LBOed companies following First Data to market.

KKR agreed to buy the credit-card processor in April for $29 billion, with Credit Suisse and Citi leading the $16 billion credit facility that would finance the deal. Deutsche Bank, HSBC, Lehman Brothers, Goldman Sachs and Merrill Lynch are also involved.

On the senior debt side, the loan package includes a $2 billion six-year revolver and a $14 billion seven-year term loan B, the largest single-tranche term loan B in history. The deal awaits ratings, but one investor who is vetting the transaction said that at current terms the debt was attractive. “This term loan B will be priced to fly,” the investor said.

If completed, the term loan would be the largest ever single-tranche term loan to clear the market, and the size of the deal does pose a challenge for the loan arrangers. They kicked off the marketing round for the biggest potential buyers on May 31 and invited as many as 19 banks to join the upper tier of the syndicate. First Data might have an advantage over some of the other transaction-processing companies because its key clients are banks, many of which were invited to join the syndicate early.

A banker involved in the deal said that despite its appeal, the arrangers had to tempt the big banks to make larger commitments than they are used to. “We have to push the envelope on this one,” he said. “You’ve got to get every bank to play for the biggest ticket they can.”

In the end, the banks can unwind their commitments, as First Data is expected to be a liquid name in the loan market.

First Data also is poised to break bond-market records. The loan arrangers have committed to provide First Data with $5.5 billion of senior unsecured notes and $2.5 billion of senior subordinated notes. Both bond tranches are backed by bridge facilities. Combined, the bond offerings would be the largest junk-bond deal ever, a record that’s stood since KKR floated $6.1 billion in junk bonds to buy RJR Nabisco in 1989.

The bonds are expected to price at the end of July at the earliest, in line with the retail syndication of the loan. First Data was expected to hold its shareholder meeting on June 21 to vote on the buyout.

First Data’s term loan B might well hold the title of largest-ever for only a short time. Citi, Goldman Sachs, JPMorgan, Lehman Brothers and Morgan Stanley have underwritten a larger term loan B for the $45 billion buyout of utility TXU Corp., a deal led by TPG Capital and KKR, according to a banker involved in the transaction. Bankers are closely watching the execution of First Data’s deal—to glimpse how TXU, though in a different industry, might be received.

The buyout market is also paying heed to First Data because of sector-specific concerns. Buyout shops have recently agreed to buy a handful of data and transaction processing companies, including The Blackstone Group’s $7.8 billion bid for Alliance Data Systems and the $5.3 billion offer by Thomas H. Lee Partners and Fidelity National Financial for Ceridian Corp. The success of First Data’s deal could determine the appetite for future plays in the sector.

“These companies are exactly what the debt markets like,” said a banker involved in the First Data transaction. “They are big companies. They have stable cash flows. And people love a company [First Data] with $1.5 billion in EBITDA.”

Timothy Sifert writes for IFR, a sister publication of Thomson Financial.