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To: Giordano Bruno who wrote (343177)	9/11/2007 3:50:26 AM
From: stan_hughes	Read Replies (2) \| Respond to of 436258

"The First Data deal is aggressive because KKR is paying about 14 times projected 2007 cash flow for the company and debt initially could total a burdensome 10-to-11 times cash flow" If this deal doesn't become history's poster boy for the debt-driven idiocy that ended the roaring 2000s, I don't know what would better qualify. 14 times projected cash flow? Say that slowly -- I said fourteen.....times.....cash flow -- not earnings, 14 X cash flow -- the reciprocal of which is a razor-thin 7.14% payback rate. And they want to finance this arrangement by levering up the company with enough debt that it will begin by consuming 10-11 times that same cash flow, with the debt priced at LIBOR +275, which at the moment exceeds that 7.14% payback ratio -- meaning that the only thing that explains why anyone is even still talking about doing this deal is because at today's interest rates the stupidly high purchase price (at 14 X CF) still exceeds the debt leverage (at "only" 10-11 X CF). This is maximum 'push' already, because if they levered the deal any further, there wouldn't be any free cash flow left, i.e. the lenders would effectively own 100% of the enterprise's ability to generate funds, whereas as of today they don't have quite that much at stake LOL -- which is why it deserves to demarcate the stock market top. I know that even at these ridiculous valuations KKR can migrate the numbers onto a new First Data balance sheet and still show some equity remaining at the onset -- that is after all how any KKR deal works, to magnify that puny little fraction of equity through leverage using OPM -- but that doesn't necessarily mean the numbers will work going forward to keep things solvent. One little stumble in the earnings stream or a hiccup in interest rates that upsets the debt to CF ratio to where it goes over 100% and it'll quickly be all over but the crying. IMO as a lender you'd have to be nuts to complete this arrangement as is -- it might be embarrassing to the banks in the short run, but they should either (a) negotiate a pound of flesh with KKR to walk away, or (b) just place the debt and eat the loss right now (at 90 if necessary), rather than add this white elephant to their already burgeoning 'future non-performing loans' portfolio -- if the banks try to be too cute and decide to hold this high-yield trash 'until market conditions improve' I bet they'll regret it .