KKR nears deal for Cotiviti valuing firm at US$11 billion
PRIVATE equity firm KKR & Co is said to be nearing a deal to buy a stake in Cotiviti from Veritas Capital, reviving a battle between Wall Street banks and private credit lenders to provide financing for one of the year’s biggest buyouts.
KKR is in discussions to buy a 50 per cent stake in Cotiviti that would value the healthcare technology company at between US$10 billion and US$11 billion, according to sources with knowledge of the matter.
The two buyout firms are in talks with both Wall Street banks and private credit funds for US$5 billion to US$6 billion of debt to help finance the deal and repay existing borrowings, said the sources, who asked not to be identified because the discussions are private. A new direct loan of that size could potentially be the largest on record, according to data compiled by Bloomberg.
The talks with KKR mark Veritas’s second attempt this year at selling part of Cotiviti, after a similar stake sale to Carlyle Group collapsed in April. KKR and Veritas are seeking a private loan with a payment-in-kind structure that would allow the company to pay interest with more debt on the entire financing, the sources said. Debt provided by banks would require interest to be paid in cash but would likely come at a lower cost for the borrower, they added.
A representative for KKR declined to comment, while spokespeople for Cotiviti and Veritas did not respond to requests seeking comment. The Wall Street Journal earlier reported that KKR and Veritas were nearing a deal.
Lower cost
Conditions in the broadly syndicated loan and junk-bond markets – where private equity firms have traditionally looked to finance multibillion-dollar buyouts – have improved in recent months. That could make a debt package arranged by banks more attractive compared to private credit and increase competition between the two sets of lenders.
Private credit firms are being asked to price the loan between 5.25 and 5.5 percentage points over the Secured Overnight Financing Rate, the sources said. That is well below the spread of 6.25 percentage points over the benchmark that private funds had offered when the deal with Carlyle was still being contemplated in March.
Lenders including Apollo Global Management, Blackstone, HPS Investment Partners and Oak Hill Advisors were in the pole position to provide debt financing for the Carlyle purchase. Leveraging one of the key advantages private funds still have over banks, they had offered Cotiviti the ability to pay half of the interest in kind. BLOOMBERG
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