KKR Riles Banks in Owens Deal

Kohlberg Kravis Roberts & Co. is shortchanging its lenders in the pending reverse-leveraged buyout of Owens-Illinois Inc., some bankers are complaining.

"Everybody is getting something out of this, except for the banks," one lender said.

Owens-Illinois is paying out about $138 million in premiums and other expenses but the commercial banks are slated to share just $1 million in fees.

The sweeping recapitalization of Owens-Illinois, taken private by KKR in 1987, requires the consent of the banks, who must amend various aspects of the company's existing $800 million credit agreement.

Amendment Fee Suggested

But several members of the bank group, which helped finance the buyout, said KKR is trying to squeeze them into submission with inadequate fees. The group is led by Bankers Trust Co.

On Friday, KKR proposed to pay banks an amendment fee amounting to one-eighth of 1% of their commitments under the $800 million credit.

KKR only needs the consent of lenders who committed an aggregate of 51% of the $800 million under the credit agreement, rather than the unanimous consent.

For that reason, and also because of the importance of maintaining their relationships with KKR, no banker was willing to suggest that the Owens-Illinois recapitalization would be torpedoed if the fees were not increased.

Still, reaction to the proposed fees from members of the bank group ranged from mild displeasure to outright indignation.

Bankers Trust, meanwhile, said the fee is fair.

Further Fees Promised

Apparently recognizing that some banks might complain about the size of the fee, KKR described it in a letter to banks on Friday as a "down payment" on future fees on a planned expansion of the credit agreement.

The $800 million credit is expected to be expanded to $1 billion later this year.

But some members of the bank group were not impressed.

Debenture Issue in Works

Indeed, at least one member of the bank group is said to be seeking a higher fee through direct negotiations with KKR.

Among other things, the banks are being asked to permit the Toledo, Ohio, maker of glass containers to issue $1 billion of senior debentures that will be pari passu, or of equal standing, with the bank debt. Bankers Trust is a co-manager of the $1 billion underwriting.

The banks are also being asked to relinquish their most valuable collateral - stock in Owens-Illinois operating subsidiaries - in return for other stock at the holding company level.

"It's a smaller pie for more people," complained one banker.

Instead of repaying the banks, proceeds from the note offering and a planned initial public offering of stock would be used to retire more-expensive junk bonds issued in connection with the 1987 buyout of Owens-Illinois.

Officials at Owens-Illinois did not return phone calls. KKR could not be reached for comment.

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