KKR Acquires Avoca to Add $8 Billion in European Credit

KKR & Co., the private-equity firm run by Henry Kravis and George Roberts, agreed to buy Avoca Capital to expand its European credit business in the lending void left by banks hampered by heightened capital standards.

Terms of the acquisition weren’t disclosed, according to a statement today from the companies. New York-based KKR will transfer as many as 5 million shares to Avoca with vesting limitations on some of them, according to a filing with the U.S. Securities and Exchange Commission. The shares would be valued at about $113 million (83 million euros) at KKR’s trading price today.

KKR joins Blackstone Group LP, Oaktree Capital Group LLC, Apollo Global Management LLC and other U.S. asset managers stepping into the lending gap left by European banks. Traditional lenders are constrained as they rebuild their capital bases to comply with stricter regulations such as the Basel III standards taking effect this decade. Blackstone last month finished raising a $5 billion global credit fund to lend to European companies burdened with debt or otherwise financially distressed.

“We’re really filling the void where traditional sources of capital are unavailable, doing deals in France, Spain, Denmark, Holland, Sweden and the U.K.,” Nathaniel Zilkha, KKR’s head of credit, said in a telephone interview today. “We’re seeing the opportunity widespread because the challenge with the banking system in Europe isn’t isolated regionally.”

Accelerating Trend

Avoca, founded in 2002 by former Allied Irish Banks Plc bankers Alan Burke and Donal Daly, will bring $8 billion in assets under management. Its 67 deal makers in London and Dublin invest in European loans, bonds and credit.

“The trend has, if anything, accelerated over the past 24 months,” Burke said in a phone interview today. “The banks are deleveraging, and there’s just a fundamental shortage of what used to be bank-originated credit.”

KKR will have $28 billion in total credit assets when the transaction is completed, with $11 billion in European securities, according to the statement. KKR’s credit unit invested $2 billion in European companies in the past two years.

“While some might question the timing of the deal given the long bull market in credit, alternative credit has much more resiliency -- and hence can do well -- than other classes of fixed income,” Christopher Harris, an analyst at Wells Fargo & Co., said in a note to clients today.

Burke will lead KKR’s credit business in Europe and report to Craig Farr, the head of KKR’s liquid-assets division, known as KKR Asset Management, according to the statement. Daly will become a senior adviser to KKR when the acquisition is completed, which is expected in the first quarter.

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