KKR & Co., the private-equity firm led by Henry Kravis and George Roberts, led a $3.5 billion private placement for First Data Corp. to help the payment processor it acquired in 2007 repay debt and strengthen its balance sheet.
KKR, which loaded First Data with debt to fund a $27.5 billion buyout before the onset of the financial crisis, marked it at 81 percent of cost as of March 31. It committed $1.2 billion of the new investment, with KKR's balance sheet providing $700 million and its 2006 buyout fund another $500 million, according to a statement today from the New York-based firm.
First Data has struggled with its $23 billion debt load, with annual interest expense consuming more than 75 percent of cash flow. The Atlanta-based company, which processes payments for retailers, financial institutions and credit-card issuers, was hit hard by the pullback in consumer spending during the recession, losing money each quarter since the buyout, according to data compiled by Bloomberg. KKR named Frank Bisignano, the former co-chief operating officer of JPMorgan Chase & Co., as First Data's chief executive officer last year.
KKR and the new investors in the company have seen that "Frank's team is able to successfully combine First Data's existing unique assets with cutting-edge technology that we believe will take the company to the next level in the months and years ahead," Kravis said in the statement.
Of the $3.5 billion capital announced today, $2 billion came from new investors, according to the statement. The equity injection will help First Data "accelerate our transformation," Bisignano said, by reducing annual interest expense by $375 million.
First Data's $2.5 billion of 11.75 percent notes due in 2021 rose 2.8 cents to 116.5 cents on the dollar at 8:22 a.m. in New York, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. That's the highest price since the debt was issued in February.
KKR has had mixed success turning around deals made from its 2006 buyout fund. The $17.6 billion fund invested in First Data as well as in Energy Future Holdings Corp., the Texas utility company bought by KKR, TPG Capital and Goldman Sachs Capital Partners for $48 billion in 2007, before natural-gas prices plummeted. The three firms and their co-investors will lose almost all of their $8.3 billion equity investment in Energy Future under proposals to restructure the company, which filed for bankruptcy protection in April.
The KKR fund, which has had an 8.5 percent annualized return after fees, has also had successes. Its investment in Dollar General Corp. returned more than 4.5 times its money, and its stake in hospital operator HCA Holdings Inc. is being carried at 4.5 times cost.