Alliance Boots £750 million hung mezzanine debt prices at 95.00, yields Libor plus 650 bps

By Paul A. Harris

St. Louis, Sept. 13 - Mezzanine debt backing the leveraged buyout of Alliance Boots plc became the second sizable portion of risk overhang resulting from hung bridge loans to be placed with investors this week, according to market sources.

Deutsche Bank, JP Morgan and UniCredit placed about £750 million of mezzanine debt at an original issue discount of 95.00, with a coupon of Libor plus 650 basis points.

Sources told Prospect News that although the mezzanine and second-lien debt had been talked in July at an OID of 95.00, the coupon was initially 400 to 425 bps. Hence the new price represents a 225 bps increase in interest expense on the loan.

And it still leaves about £1 billion of second-lien and mezzanine debt backing the £11.1 billion LBO led by Kohlberg Kravis Roberts & Co. on the balance sheets of the underwriters, according to sources.

In August £9 billion of Alliance Boots debt financing was withdrawn due to market conditions.

Alliance Boots is the biggest LBO deal ever done in Europe, according to sources.

Earlier in the week, Citigroup, Lehman Brothers and Merrill Lynch placed about $1 billion of the hung bridge loan backing the LBO of Allison Transmission at 96.00, leaving about $2 billion of the postponed $3.1 billion term loan on the underwriters' balance sheets.

Investors in the Allison Transmission deal were granted 60 days of downside trading price protection should the underwriters elect to sell any of the remainder at a discount deeper than 96.00 during that period.

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