(Bloomberg) — A KKR & Co. debt sale shows how far Wall Street is willing to go to keep leveraged underwriting business from slipping away to private credit after periods of turmoil.
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After losing a €1.1 billion ($1.24 billion) buyout financing assignment to direct lending rivals, banks including Jefferies Financial Group Inc. and Citigroup Inc. kept themselves on the private equity giant’s payroll by agreeing to extend low-fee revolving credit for KKR’s acquisition of Karo Healthcare.
In exchange, KKR will allot them a part of the fee on the deal they lost to private lenders led by Apollo Global Management Inc., according to people familiar with the matter who asked not to be identified because the matter is private. Banks are set to pocket around 40% of the 1.75% underwriting fee, the people said.
The unusual arrangement hints at efforts to maintain relationships during bouts of market volatility that can win them business later. Banks often steer clear of undrawn credit facilities with negligible fees, agreements that tie up capital that could be used to make more profitable loans. If they offer them at all on a leveraged deal, it’s usually in conjunction with more lucrative term loans or high yield bonds.
Now, however, Wall Street’s leveraged finance desks, which chased fee-rich deals to reel in a third of investment-banking revenue in recent years, are in no mood to fritter away some of their edge like they did in 2022. After taking losses on “hung deals” back then, they came to regret their reluctance to back acquisitions and provide undrawn credit while direct lenders made inroads into their business.
“Banks are continuing to evolve,” said Jeremy Duffy, a partner at law firm White & Case LLP who advises on leveraged finance. “They are acutely aware of the onward march of private credit and are reacting accordingly.”
Yet 2025’s wild market gyrations have already pushed borrowers toward private credit funds that can ride out volatility better than banks.
Karo’s bank lenders, which include HSBC Holdings Plc, alongside KKR Capital Markets, extended about €175 million in undrawn facilities. What went unused is the €1.1 billion of drawn debt they’d committed for the buyout of the Swedish consumer-health company.
KKR hadn’t yet countersigned the agreement, the people said, and eventually opted for a private unitranche, a blend of junior and senior debt, of the same size. More than 10 lenders including Apollo, Jefferies and CVC took part in what became possibly the tightest-ever pricing for a European direct lending deal despite the market turmoil.
KKR decided to pay some of the traditional lenders a fee anyway because for about 10 days in early April, before private lenders stepped in, the banks were carrying that risk amid the tumult. Spokespeople for KKR, HSBC and Citi declined to comment. A representative for Jefferies didn’t immediately respond to requests for comment.
With undrawn loans now a possible bargaining chip for banks, speculation is rising over how soon they’ll come across a situation similar to Karo’s.
One that’s being closely watched is the acquisition of Spanish waste management services business Urbaser. Private credit funds and banks are competing to underwrite a package that includes over €2 billion of drawn debt. At the same time, any buyout could require €1.5 billion or so of guarantee and revolving credit facilities, people with knowledge of the matter said earlier this month.
“It is not surprising that banks are taking a longer-term view on maintaining and nurturing relationships in this market,” said Sabrina Fox of Fox Legal Training, a leveraged finance expert. “Even if that means short-term loss, there is a much higher potential for long-term gain.”
Week In Review
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At the Milken Institute Global Conference this week, key players in private credit talked up their next “golden opportunity” as they look for bargains amid the recent market gyrations.
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US high-grade corporate bond sales surged this week to about $45 billion, the highest level since March. It’s the latest sign that markets are reopening after being shut for part of April amid escalating trade wars. Even companies that will likely face pressure from global tariffs, including Apple and General Motors, tapped the market.
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Thawing markets are spurring banks that were stuck with $6 billion of buyout debt amid the tariff turmoil to look for ways to start offloading it to investors.
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Companies financed in the private credit market started showing signs of stress in the first quarter, according to recent results from business development companies.
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For decades buyout firms largely stuck by the maxim that lenders got looked after first when one of their businesses was in trouble. Those days are now over. Far from priority, or even equal, treatment, many creditors are getting shoved ever further back in the line.
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Citigroup Inc. is ramping up lending to private equity and private credit groups, working to catch up with peers like JPMorgan Chase & Co. and Goldman Sachs Group Inc. after the bank spent years on the sidelines.
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JPMorgan Chase & Co. is set to lead about $6.5 billion in debt financing to support private equity firm 3G Capital’s purchase of footwear maker Skechers.
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There were a series of notable bankruptcies this week:
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Rite Aid Corp. filed for bankruptcy again, less than a year after completing a restructuring that was supposed to turn the troubled pharmacy chain around. The company won court approval to run an expedited process to sell customers’ prescription information to rival pharmacies as it prepares to unload or close its stores.
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WeightWatchers, known for its diet programs once endorsed by celebrities including Oprah Winfrey, filed for bankruptcy after struggling to compete with drugs like Ozempic and the rise of TikTok fitness influencers.
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Synthego Corp., which makes gene-editing tools for drug developers and other researchers, filed for bankruptcy with plans to sell itself to its main lender, an affiliate of private equity firm Perceptive Advisors.
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Sumitomo Mitsui Banking Corp. is joining forces with asset managers at Monroe Capital and MA Financial Group to work together on $1.7 billion of lending deals in the fast-growing private credit market.
On the Move
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Morgan Stanley Investment Management has hired Peter Campo as managing director and head of floating-rate loans
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Mitsubishi UFJ Financial Group has hired John Clements from Barclays to be its head of collateralized loan obligations
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Deutsche Bank AG hired Citigroup Inc. executive Nicola Baker to expand its US private banking operations as Germany’s biggest lender pushes to do more business with the world’s ultra-rich.
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Hilltop Securities has appointed Jason Lisec to lead municipal sales and trading
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Toronto-Dominion Bank’s Jason Wen, head of US investment-grade credit sales and trading, will be leaving the firm in the next several months as part of job cuts following a shakeup at the top of the firm’s global-markets unit
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Nomura Holdings Inc. has hired Bank of America Corp.’s Moritz Westhoff to head its US rates business
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Investment banker Gary Antenberg is joining Royal Bank of Canada from Barclays Plc to focus on insurance and alternative asset management clients
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Matt Maloney, a partner at Gramercy Funds Management, has left after a decade with the emerging-market focused hedge fund
–With assistance from Rheaa Rao.
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