Kravis Says Markets Allow Cheapest Financing on Del Monte

KKR & Co. Co-Founder Henry Kravis
Henry Kravis, co-founder and of KKR & Co. Photographer: Peter Foley/Bloomberg

Henry Kravis, co-founder of KKR & Co., said his firm got the cheapest financing ever to fund its $5.3 billion takeover of Del Monte Foods Co. after credit markets rebounded from the global financial crisis.

“It’s probably the most attractive financing that we’ve ever done,” Kravis said in a speech in Paris yesterday at a conference organized by political-science university Sciences Po. “The financial markets rebounded much faster than the economy.”

KKR, Vestar Capital Partners and Centerview Partners said in November they were offering to take Del Monte, the San Francisco-based maker of pet foods Meow Mix and Kibbles ‘n Bits, private. Leveraged-buyout firms including New York-based KKR are acquiring and selling assets again as banks resume lending and investors regain appetite for riskier debt such as high-yield bonds. They led $23.7 billion of buyouts so far this year, almost double the amount in the same period last year, according to data compiled by Bloomberg.

Kravis, 67, said his firm achieved a weighted average cost of capital of about 5.5 percent on the Del Monte financing, by using 72 percent debt to fund the takeover.

Low interest rates are pushing financial institutions and pension funds to buy riskier assets because they are looking for better returns, Kravis said.

“All the prognosticators who said that private-equity firms would go out of business much faster than anybody else, and that they would be gone, this didn’t come true,” Kravis said. “And one of the reasons is that you could refinance that debt very soon.”

Tighter Regulatory Environment

Reflecting on the tighter regulatory environment private-equity firms face, Kravis said managers “could have done a better job over a longer period of time at explaining what we do.”

“Politicians, on the other hand, haven’t done a good job either at understanding what we do,” he said. Kravis told an anecdote about U.S. government officials unable to distinguish between hedge funds and private equity.

While deal-making is picking up, firms still have difficulty raising funds, Kravis said.

KKR, which manages about $61 billion and is marketing a new buyout pool, faces a “tougher fund-raising environment than in 2006,” when it put together a $17.6 billion fund, Kravis said. He declined to elaborate on the amount KKR may amass this time.

“I worry about everything,” Kravis said when asked about the economic and geopolitical environment. “You constantly have to look over your shoulder.”

Private-equity firms pool investors’ money to take over companies, financing the purchase with mostly debt, with the intention of selling them later for a profit.

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