Financing woes "choking" buyouts

Thomas H. Lee's Sperling Says Markets Are `Choking' on Buyouts
By Jason Kelly and Charles Stein

July 27 (Bloomberg) -- Private-equity takeovers of companies such as Dollar General Corp. and Alliance Boots Plc have piled on more debt than investors are willing to tolerate, Thomas H. Lee Partners LP Co-President Scott Sperling said.

``There are five or six transactions that the market is still choking on,'' Sperling said in an interview today. ``All of those that have been difficult to finance, that may have been a catalyst to what we're seeing.''

Kohlberg Kravis Roberts & Co., the New York-based firm behind the Alliance and Dollar General bids, failed this week to find financing for its buyout of Alliance, the U.K.'s biggest pharmacy chain. That's reflective of a larger repudiation of leveraged buyouts by debt investors demanding to be compensated better for the risks of the loans and bonds.

``We're going to see a pause here,'' Sperling, whose firm is based in Boston, said. ``The folks in our industry are going to sit back and wait for whatever reasonable readjustment there will be.''

About two-thirds of the price tag in the typical leveraged buyout is paid with borrowed money, with the balance coming from cash the takeover firm has raised. Private-equity firms have announced $692.7 billion in transactions so far this year, almost equaling last year's total of $701.5 billion, according to data compiled by Bloomberg.

Buyout firms including KKR are relying on their investment banks to provide loans to finance the deals or reworking the terms of the debt to make them more palatable to investors.

Concern about how private-equity firms will obtain funding is affecting deals that have yet to be completed. Cadbury Schweppes Plc, the world's largest candy maker, said today it plans to delay the sale of its U.S. beverage unit because of the ``extreme volatility'' in the debt markets.

Two buyout groups, one including TPG Inc. in Fort Worth, Texas, and the other New York-based Blackstone Group LP, have expressed interest in the drinks unit, according to people with knowledge of the bidding.