KKR To Halve Oriental Brewery Debt via Refinancing

(Reuters) – After months of speculation, Kohlberg Kravis Roberts & Co has mandated Korea Development Bank to refinance the deal that backed its $1.8 billion leveraged buyout of Oriental Brewery Co Ltd (OB) in 2009.

KKR would halve its borrowing costs through the planned refinancing deal, according to sources familiar with the matter.

The blue-chip sponsor was forced to pay a top-level all-in of 660 basis points (bps) for a five-year, $915 million-equivalent loan when it bought the Korean brewer from Anheuser-Busch InBev NV INTB.BR during a period of tight liquidity in 2009.

Two sources said KDB’s 1.5 trillion won ($1.2 billion) refinancing deal would pay around 300 bps all-in, via a 250 bps margin and front-end fees of around 200 bps. The refinancing has a five-year tenor and a 4.1-year average life.

Given the pricing, the fact that the deal is entirely in Korean won, and that leverage on the company is expected to increase from four to six times, the international banks that were the mainstay of the original financing are not expected to join.

KKR’s winning OB bid was backed by eight international banks, four of them underwriting US$150 million each – HSBC (HSBA.L)(0005.HK), JP Morgan (JPM.N), Nomura International (8604.T) and Standard Chartered Bank (STAN.L)(2888.HK).

The OB acquisition was the first major leveraged buyout after the Lehman Brothers bankruptcy, and KKR paid a premium for that underwritten backing. Banks on the deal always maintained that the OB loan would be refinanced well before maturity.

Banco Santander (SAN.MC) , the then Calyon, ING Bank (ING.AS) and Natixis (CNAT.PA) also signed up to the bid with take-and-holds, according to Thomson Reuters LPC data.

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Commitments from banks were due last Friday, with strong interest from Korean banks, according to sources.

“It’s a good name, good credit, and there’s a dearth of deals,” said a senior banker from an international bank involved in the original loan.

The sources said they expected KDB to complete the deal through a large club of Korean banks, rather than going to the market with a lengthier syndication process. Completion is expected in July.

The deal features a 1.4 trillion won term loan divided into at least two tranches, and a 100 billion won revolving credit. (Reporting by Stephen Aldred and Foster Wong; Editing by Chris Lewis)