KKR Shifts Benchmark on LBO Loan
Circumstances around the latest prominent move away from LIBOR, and the reaction of investors, emphasize that the market is ready to fully embrace SOFR.
In another step forward for the leading new benchmark lending rate in the United States, KKR & Co. switched to the regulator-approved Secured Overnight Financing Rate (SOFR) from LIBOR in the middle of marketing a buyout financing on behalf of Trilantic North America.
When KKR, as lead arranger, began marketing the $545 million leveraged buyout (LBO) of Addison Group in the first week of January, it proposed pricing the loan off LIBOR. Less than two weeks into the sales process, KKR shifted to SOFR from the discredited London interbank offered rate.
The Addison loan was well-received by investors, allowing KKR to also lower the overall yield, according to people familiar with the matter who aren’t authorized to speak publicly. The deal remained oversubscribed after the changes and wrapped up late Wednesday, the people said. A KKR representative declined to comment.
The New Standard
The latest shift to SOFR underscores the rate’s growing acceptance in the $1.3 trillion leveraged loan market after an initially slow transition. While LIBOR was scheduled to be discontinued for new loans starting in 2022, bank regulators made an exception for those under contract last year.
Almost all LBO-backed leveraged loans and those for mergers and acquisitions (M&A) are now being marketed with SOFR. For example, Bausch Health Companies’ $2.5 billion loan launched with SOFR, as did medical technology company Becton, Dickinson & Co.’s $1.15 billion term loan for the spinoff of Embecta Corp.
Using the replacement benchmark makes sense for borrowers. SOFR is currently lower than LIBOR, even taking into account credit spread adjustments on many loans to make up for the differences between the two rates.
See also:
- LIBOR’s Decades-Long Dominance of Rates Is Over
- Why SOFR Makes a Big Trader Uneasy
- Are You Ready for the Cessation of USD LIBOR?
- First Leveraged Loan Tied Only to SOFR
- How to Prepare for the End of LIBOR
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