Deutsche Bank AG, Citigroup Inc. and Royal Bank of Scotland Group Plc are selling at least 2 billion ($3.9 billion) of loans that funded the leveraged buyout of Alliance Boots, the first deal frozen when credit markets began seizing up in July, Bloomberg reports.
Apollo Management Inc. and Blackstone Group LP agreed to buy some of the debt that financed Kohlberg Kravis Roberts & Co.’s 11 billion takeover of the Nottingham, England-based pharmacy chain, said two people with knowledge of the sale, who declined to be identified because the talks are private. The banks offered to help the LBO firms pay for the purchase and cut the price of the loans to 91% of face value, they said.
Deutsche Bank and seven other lenders failed in July to find buyers for 8 billion of loans used for the takeover of Boots, Europe’s biggest LBO, marking the beginning of a global credit crunch that saddled banks with $230 billion of loans and contributed to $337 billion of losses and writedowns. Banks are taking advantage of a 7% rise in the average price of high-yield, high-risk loans since February to cut the overhang of debt on their books to $95 billion.
“Boots is a big benchmark transaction that was done at the top of the market,” says Vivek Tawadey, head of credit strategy at BNP Paribas SA. “The fact that it’s being sold is certainly a positive sign,” though “it will crystallize a loss on the balance sheets of the selling banks.”