An IPO of KKR-owned payment processor First Data could be in the wings as the company is unable to earn enough money to lighten its debt load, so instead may turn to an equity offering. First Data's paper has been near the distressed level ever since a KKR buyout layered $20B in debt onto the company in a 2007 buyout. Interest expense currently consumes more than 75% of free cash flow.
The yield spread over Treasurys has narrowed 60 basis points in the past few days to 656 bps after First Data CFO mused about an equity offering on an investor call on Feb. 5.
KKR's 2007 purchase was funded with the aforementioned debt as well as $6.4B of equity contributed by the buyout firm.
“The fact that [an IPO is under] discussion at this point is a good thing,” says Canaccord's Michael Drexler. “The home run would be them getting an IPO done relatively soon. It’s really just a matter of how quickly they can get the growth story going.”