KKR may start selling TXU loan

KKR, TPG Bankers May Start Selling TXU Loan Next Week (Update2)
By Pierre Paulden and Jason Kelly

Oct. 5 (Bloomberg) -- Bankers for Kohlberg Kravis Roberts & Co. and TPG Inc. may start selling loans to finance the $32 billion purchase of Texas utility TXU Corp. next week as demand for high-yield debt increases, people with direct knowledge of the deal said.

Citigroup Inc. and JPMorgan Chase & Co. will seek buyers for at least $5 billion of loans to help pay for the biggest U.S. leveraged buyout, according to three people, who asked not to be named because the terms haven't been set.

Banks are offering discounts of as much as 4 percent to sell some of the $300 billion of LBO financing they promised before losses on subprime mortgages shut down the market for high-yield, high-risk debt in July. Lenders syndicated $9.4 billion for New York-based KKR's purchase of First Data Corp. last week, in a sign that investor appetite is returning.

``The tone of the market has been much better in recent weeks,'' said Clark Orsky, an analyst at high-yield debt research firm KDP Investment Advisors in Montpelier, Vermont. ``How much of the loans the banks can move off their books depends on how large a discount they are willing to take.''

KKR and Fort Worth, Texas-based TPG, formerly known as Texas Pacific Group, agreed to buy TXU in February. The firms and New York-based JPMorgan and Citigroup declined to comment. Dallas- based TXU is the largest power provider in Texas.

Sales of U.S. leveraged loans dropped to $12 billion in September from more than $50 billion in June, according to data compiled by Bloomberg. Demand picked up after the Federal Reserve lowered its benchmark interest rate by a half-percentage point Sept. 18.

Unsold Debt
TXU rose 10 cents to $68.90 in New York Stock Exchange composite trading. KKR is offering $69.25 a share.

KKR's banks may keep some of the debt on their balance sheets. TXU said in a July regulatory filing that the lenders would provide about $26 billion of loans and $11.3 billion in bonds. More than $3 billion of loans and $9 billion of bonds financing the purchase of Greenwood Village, Colorado-based First Data have yet to be sold.

The loans will comprise a $2.7 billion revolving credit line, a $1.25 billion letter of credit facility, a $16.5 billion term loan and a $4.1 billion delayed draw term loan, according to a filing today with the Securities and Exchange Commission. Banks also agreed to provide $11.3 billion of senior unsecured bridge loans until the bonds are sold. Oncor Electric Delivery Company, a subsidiary of TXU, will also receive a $2 billion revolving credit line.

In a revolving credit facility, money can be borrowed again once it's repaid; in a term loan, it can't.

Discounted Loans
The sale is scheduled to close Oct. 10, TXU said in the filing.

The banks on the TXU deal probably will sell the loans at a discount to attract investors, the people said. First Data's banks offered the loans at as much as 4 percent below face value.

Credit Suisse Group in Zurich and New York-based Goldman Sachs Group Inc., Lehman Brothers Holdings Inc. and Morgan Stanley also committed to provide financing and are helping arrange the TXU loans.

The LCDX index, a gauge of confidence in the U.S. leveraged loan market, has gained 8.2 percent to 97.39 since July 30, according to Goldman Sachs, the largest securities firm.

Allison Transmission, the automobile-parts supplier formerly owned by General Motors Corp., started a $550 million sale of high-yield notes yesterday after delaying the offering in July, according to a person familiar with the offering. Indianapolis- based Allison is selling debt to help pay for its $5.6 billion leveraged buyout by Washington-based Carlyle Group and Toronto- based Onex Corp., Canada's biggest buyout firm.

Bankers for Carlyle and Onex completed a $1.5 billion sale of loans last month after offering the debt at a price of as low as 96 cents on the dollar.