KKR Snags Goldman’s Role in UFC Loan

  • Regulator pushed back twice on concern about curtailing risk
  • Private equity firms fill void as Wall Street banks step back

KKR & Co. took command of a deal to reprice Ultimate Fighting Championship’s buyout loan from banks led by Goldman Sachs Group Inc. after regulators reprimanded the lenders for flouting risk guidelines on the original deal.

UFC is seeking to cut interest on a $1.38 billion loan, according to people familiar with the matter, who asked not to be identified because the discussions are private. KKR became the sole arranger after Wall Street lenders including Goldman Sachs and Deutsche Bank AG were cautioned by the Federal Reserve about risks in the $2 billion debt deal arranged last year to fund the league’s buyout.

Regulators have been clamping down on lending practices by Wall Street’s biggest banks for more than three years, leaving deals up for grabs by firms such as KKR that aren’t subject to the same strict oversight. The borrowers are taking advantage of brisk demand from investors for floating-rate debt, sparked by their expectations that interest rates will head higher.

Ultimate Fighting Championship, the world’s biggest promoter of mixed martial arts, sold for $4 billion last year to a group led by Hollywood talent agency WME-IMG. The loans, originally marketed six month ago, were among the most sought-after borrowings at the time by investors, and the company is seeking to exploit that by reducing the interest it pays on the debt.

Deep Pockets

Goldman Sachs was the lead arranger for the biggest portion of the original loans. Backers for the buyout included private equity firms Silver Lake Partners, KKR and Dell Inc. founder Michael Dell’s investment firm. Casino executives Frank and Lorenzo Fertitta struck the deal to sell UFC in July. KKR’s capital markets team was also part of the original syndicate.

Representatives for Goldman Sachs and KKR, both based in New York, Frankfurt-based Deutsche Bank and Silver Lake Partners, with offices in Menlo Park, California, and for the Fed in Washington declined to comment.

The Fed twice reprimanded the banks about the loan last year, including a second time after the lenders appealed an earlier warning, according to separate people with knowledge of the matter. They asked not to be identified because communications between banks and regulators are confidential.

Regulators have criticized deals that push a company’s debt load to more than six times its earnings. In the case of UFC, they focused on accounting adjustments that more than doubled cash flow projections, people familiar with the matter said at the time.

Such earnings adjustments -- known as add-backs -- are a common practice when estimating a company’s profitability after an acquisition or buyout. Regulators were concerned the forecasts were too optimistic, making companies appear more creditworthy than they actually were.