The move also showed the flexibility of the company's significant balance sheet and its ability to execute a very large private capital raise apart from drawing on its 2006 Fund, the principal vehicle through which KKR acquired First Data in 2007.
We view the equity infusion as rating neutral for KKR ('A', Stable Outlook) and favorable to the credit profile of First Data ('B', Stable Outlook). With KKR's equity raise, First Data announced a debt reduction targeting
KKR's injection typifies the realities of operating a major private equity firm, which demands a willingness and ability to recognize the potential need to right-size portfolio companies' leverage prior to IPOs or other forms of exit. The deal may also represent a needed move that would make IPO underwriters more confident in executing a sound public offering.
KKR itself (versus its funds or other investors) invested
As illustrated in the case of First Data, investment managers that focus on large, leveraged stakes of major corporations may periodically need to commit further funds, involving significant nominal investment amounts, material execution risk and sometimes use of the manager's balance sheet. In KKR's case, the company's very modest debt/equity levels ($2b post injection) mitigate these risks.
KKR also noted that
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.
Source: Fitch Ratings
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