Kinetic Concepts drops $900 million unsecured tranche from LBO financing bond offering

By Paul A. Harris

Portland, Ore., Oct. 11 - Kinetic Concepts Inc. has downsized its leveraged buyout financing bond deal to $1.65 billion from $2.55 billion by withdrawing a planned $900 million offering of senior unsecured notes, according to an informed source.

What remains in the so-called "public market" is a $1.65 billion equivalent amount of 7.5-year second-lien senior secured notes (B3/B/).

Those notes are being offered in dollar and euro denominations.

Morgan Stanley & Co. LLC, Bank of America Merrill Lynch, Credit Suisse Securities (USA) LLC and RBC Capital Markets are the joint bookrunners for the Rule 144A and Regulation S with registration rights notes.

UBS Investment Bank is the co-manager.

The notes come with three years of call protection.

Proceeds will be used to help fund the buyout of the company by Apax Partners, Canada Pension Plan Investment Board and the Public Sector Pension Investment Board for $68.50 per share in cash in a transaction valued at $6.3 billion, including outstanding debt.

Prior to the closing of the merger the issuing entity will be Chiron Merger Sub, Inc. After the merger is complete the issuing entities will be Kinetic Concepts Inc. and KCI USA, Inc.

The second-lien notes portion of the financing, itself, was upsized to $1.65 billion from $1.25 billion last week when the term loan portion of the Kinetic Concepts LBO deal was downsized to $2.2 billion from $2.6 billion.

In addition to the bonds and the term loan, acquisition financing includes a $200 million revolver and about $1.75 billion of equity.

Kinetic Concepts is San Antonio-based medical technology company.

Club-style for unsecureds

At least a portion of the withdrawn $900 million unsecured tranche will be marketed club-style, in the manner of a true private placement, the informed source added.

Such an execution would bear some resemblance to Emdeon Inc.'s $375 million tranche of 11¼% senior notes due 2020, which was marketed private placement-style prior to last Friday's launch of $375 million of eight-year senior notes to qualified institutional investors.

In the case of Emdeon, Goldman Sachs Asset Management agreed to purchase the $375 million of 11¼% notes, as previously reported.

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