Banks turn to private equity in bid to sell Boots debt

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The Independent Online

Banks holding billions of pounds worth of debt backing last year's buyout of Alliance Boots are set to turn to private equity companies after they failed to sell chunks of the debt last week.

An attempt to sell £780m of the debt at 91 per cent of its value collapsed last week as tensions emerged between the syndicate banks.

One source close to the banking syndicate said it would be the "logical next step" as they prepared a new plan to offload the debt. One private equity professional said: "At least one bank has gauged the appetite in the market; of course buyout firms will be interested."

The private-equity giant Kohlberg Kravis Roberts bought the UK healthcare chain last year for £11bn – of which £9bn was debt – in the largest European buyout of the year.

Last week's plan to sell the debt collapsed over a controversial clause that required the lenders to compensate buyers of the debt if it was sold more cheaply in the future.

The syndicate banks have signed an agreement that needs permission from all eight to sell the debt, and they were split down the middle over the "most favoured nation" clause. A source close to the talks said: "Four were against the move and four backed it. That killed the whole thing."

The two lead banks that arranged debt on the Boots deal were Deutsche and JP Morgan. The others were Bank of America, Barclays, HVB, Merrill Lynch, Morgan Stanley and Royal Bank of Scotland.

In the wake of the credit crunch and the collapse of cheap debt, banks have been left with billions of pounds worth of debt from private equity deals on the their balance sheets.