Kohlberg Kravis Infuses $1.2B in First Data, Shares Fall - Analyst Blog

Kohlberg Kravis Roberts & Co.'s KKR recent news of leading a $3.5 billion worth private placement for First Data Corp., resulted in a nearly 1.0% decline in its shares. Notably, through this private offering, Kohlberg Kravis aims to reduce the interest payment burden for First Data as well as prepare grounds for a future public offering.

According to First Data, the Atlanta, GA-based global payment processing company, Kohlberg Kravis has committed an investment worth $1.2 billion. Of the total amount committed, $500 million will come from the 2006 private equity fund and $700 million will be funded from its own balance sheet. Another $2 billion will be provided by new investors, including a diverse group of pension funds, mutual funds, asset managers and wealthy individuals. The remaining $300 million will come from its existing shareholders.

Notably, NY-based Kohlberg Kravis acquired First Data for $29.0 billion in 2007, in one of the world's biggest leveraged buyout deals. Nonetheless, ever since the recession, the big payment processor has been struggling against waning consumer spending. In the fiscal year ended on Mar 31, 2014, First Data incurred a loss of $732.2 million as the majority of its cash flow was absorbed in servicing the net debt of $24.3 billion.

Now, the capital infusion would lower the annual interest expenses of First Data by $375 million. The company would then have the scope to transform into a solutions and innovation company that would help its clients to grow their businesses.

The capital injection in the form of private placement may be a make-shift arrangement with a public offering in the cards. Irrespective of how the money is being raised, through public offering or private placement, the sheer volume of the funds ($3.5 billion) is indeed significant.

Currently, Kohlberg Kravis carries a Zacks Rank #3 (Hold). Some better-ranked investment managers include Woori Finance Holdings Co., Ltd. WF, Ameriprise Financial, Inc. AMP and BlackRock, Inc. BLK. While Woori Finance Holdings sports a Zacks Rank #1 (Strong Buy), both Ameriprise Financial and BlackRock hold a Zacks Rank #2 (Buy).