KKR’s Brickman Said to Turn to Jefferies for Loans as Banks Balk

KKR & Co.’s Brickman Group Ltd. is using a different set of banks to finance a purchase after some of it’s original lenders backed away due to regulatory concerns, according to two people with knowledge of the matter.

Morgan Stanley, Credit Suisse Group AG, Goldman Sachs Group Inc. are among lenders who helped finance KKR’s buyout of the landscaper six months ago that aren’t participating in a new $725 million loan needed to buy ValleyCrest Companies LLC, according to data compiled by Bloomberg. Some of the original lenders are abstaining because it may not meet underwriting standards outlined by U.S. banking regulators, said the people, who requested anonymity because they weren’t authorized to speak publicly.

The new loan is being arranged by Jefferies Group LLC, along with Macquarie Group Ltd., Mizuho Financial Group Inc., Sumitomo Mitsui Financial Group Inc., Nomura Holdings Inc. and KKR, according to data compiled by Bloomberg. The financing also includes a $100 million revolving credit line.

The Federal Reserve and the Office of the Comptroller of the Currency have been insisting that banks comply with minimum underwriting standards that were laid out last year in order to avoid a repeat of the losses that occurred during the credit crisis. The decision by some lenders not to participate in the loan for Rockville, Maryland-based Brickman comes less than a month after Todd Vermilyea, a Fed regulator, said that standards “have continued to deteriorate in 2014” and that “stronger supervisory action” may be needed.

The bank group that last year underwrote the debt backing KKR’s buyout of Brickman also included Royal Bank of Canada, Macquarie, Mizuho, Sumitomo and UBS AG, Bloomberg data show. The change of banks was reported earlier by Reuters.

Leverage Levels

Michael Duvally, a spokesman for Goldman Sachs; Mary Claire Delaney, a spokeswoman for Morgan Stanley; Drew Benson, a spokesman for Credit Suisse; and Kristi Huller, a spokeswoman for KKR, all declined to comment. A telephone call to LaNella Hooper-Williams, a spokesperson for Brickman, wasn’t immediately returned.

The financing is expected to be marketed to investors with total leverage of about 5.9 times earnings before interest, taxes, depreciation and amortization, according to another person with knowledge of the deal. That’s down from 6.5 times Ebitda after KKR bought Brickman, the person said.

The company’s earnings have risen since the buyout and there’ll be cost saving synergies from the merger with ValleyCrest, the person said, citing reasons for the lower leverage.

Lenders are increasingly permitting some junk-rated borrowers to adjust their earnings to make them look more credit-worthy. These tweaks, while permissible under credit pacts, can help companies stay in compliance with their loan terms.

Deteriorating Standards

The Fed, OCC and Federal Deposit Insurance Corp. said in March 2013 that debt levels of more than six times Ebitda “raises concerns.”

Richard Khaleel, a spokesman for Jefferies, declined to comment on the merger financing.

Brickman is purchasing ValleyCrest in a deal that will create a landscape and snow services company with about $2 billion of combined revenue, according to a joint company statement on May 21. The merger is expected to be completed by midyear.

KKR, the private-equity firm led by Henry Kravis and George Roberts, agreed in November to buy Brickman from Leonard Green & Partners LP for $1.6 billion.

The following month, the landscape maintenance company signed $970 million of term loans backing the buyout, including $735 million of first-lien and $235 million of second-lien, Bloomberg data show.

A bank meeting for the ValleyCrest deal financing is scheduled for June 4, Bloomberg data show.

To contact the reporter on this story: Christine Idzelis in New York at cidzelis@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Faris Khan, Caroline Salas Gage

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