Henry Kravis--"I've never seen a market with this much liquidity and capital available."
(Very Likely an Indicator of a Top In Global Liquidity and Financing Conditions. This "top" actually occurred back in May but it will not crystalize fully until mid Sept.)
Leveraged-buyout market hot, financier says
By Edward Evans
Bloomberg News
Posted on Fri, Aug. 18, 2006
Henry Kravis, cofounder of Kohlberg, Kravis, Roberts & Co., said he had "never seen" so much capital available for leveraged buyouts as hedge funds and other investors provide debt to finance deals.
"We continue to be very active and optimistic about our ability to close large transactions," Kravis said in a conference call yesterday with investors in the New York-based firm's publicly traded buyout fund. "I've never seen a market with this much liquidity and capital available."
Hedge funds, private pools of capital catering to the wealthy, and other investors are providing more money in the form of debt for buyout firms even as central banks in Europe and the United States push up borrowing costs to stem inflation. KKR is among private-equity firms that have made a record $306 billion of takeovers this year.
Kravis' firm raised $5 billion in May selling 200 million shares in an initial public offering of KKR Private Equity Investors L.L.P. The fund has committed to spending $3.5 billion, helping KKR pay for its takeovers of U.S. hospital operator HCA Inc., French yellow pages publisher PagesJaunes Groupe, and Royal Philips Electronics N.V.'s semiconductor unit. Those three deals alone are worth about $50 billion, including debt, Kravis said yesterday.
"We are very optimistic we will deploy the IPO capital within 18 months," Kravis said. The company would not take questions from the media on the call. With the fund, KKR founders Kravis and George Roberts granted individuals with less than $25 million access to the firm's takeover deals for the first time in its 30-year history. Shares of the fund have dropped 9 percent since KKR sold them for $25 apiece in the IPO.
Falling stock markets will offset the rising interest cost of financing leveraged buyouts, Kravis said. Private-equity firms use debt to fund more than two-thirds of the value of takeovers.
"Valuations are coming down to offset rising finance costs," he said. KKR, the world's biggest leveraged-buyout firm, and two other firms are facing the highest interest since 2001 as they finance the $33 billion takeover of HCA, one of the largest leveraged buyouts in history. The London-interbank-offered rate, a benchmark for lending, is close to its highest since 2001.
The Morgan Stanley Capital International World Index, a measure tracking stocks worldwide, has slid 4 percent from a near-six-year high set May 9 as central banks raise interest rates.
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