KKR Knuckles Under

After weeks of sabre rattling about how its would hold banks to their lending commitments on money to finance its takeover of First Data (FDC), KKR "appears willing to agree to a covenant that places a performance criteria on First Data’s debt," according to The Wall Street Journal. The paper says that banks may still lose as much as $1.3 billion on the debt.

But, large banks and investment houses have make billion of dollars in fees providing financing for similar deals, and, in a bad environment, it may be time for them to part with some or all of their gains as they stick to contracts that promise that they will provide debt for individual private equity financing.

The larger question is whether KKR has done itself and its competitors any favor by giving in even a little. It could certainly make the argument that banks have gotten rich off it deal that the private equity firm has brought them. As the Journal writes: "It is to everyone’s benefit for the syndication process to move smoothly," says one person who worked on the deal. "And it benefits both KKR and the banks for the debt to trade well."

That may not be true. KKR makes it money from buying companies and collecting fees, in part, on how well those companies do in the future. Anything that begins to tie its hands in the operations or financial activities at the companies adds to the firm’s risk.

Giving the banks even a little is a slippery slope.

Douglas A. McIntyre