Bloomberg News

Kinetic Cuts Bond Sale to $1.65 Billion as Spreads Widen

October 10, 2011

(Updates with junk bond returns in third paragraph.)

Oct. 10 (Bloomberg) -- Kinetic Concepts Inc., the wound care company that’s being bought by Apax Partners Inc., is cutting the size of a speculative-grade bond offering to $1.65 billion from $2.55 billion, according to a person with knowledge of the transaction.

The company delayed marketing of $900 million of senior unsecured notes, said the person, who declined to be identified because terms aren’t set. Kinetic still plans to sell $1.65 billion of senior secured second-lien debt due 2019 in euros and dollars, the person said.

The firm agreed in July, before credit markets weakened, to be taken private in the largest leveraged buyout since Lehman Brothers Holdings Inc. failed in 2008. Junk bonds have lost 8.2 percent since July while debt graded CCC and lower has plummeted 15 percent amid investor concern that Europe’s fiscal crisis is intensifying and the economic recovery is faltering.

The San Antonio-based company is also planning a $2.2 billion term loan that may be sold for as little as 95.5 cents on the dollar, according to data compiled by Bloomberg.

The second-lien notes were graded B3 by Moody’s Investors Service and B from Standard & Poor’s while the unsecured debt was assigned a Caa1 from Moody’s and CCC+ from S&P.

Kinetic’s offering was poised to be the biggest since HCA Inc. issued $5 billion of debt on July 26, and the fifth-largest this year. The debt will be marketed in Europe this week and then in the U.S., the person said. Morgan Stanley, Bank of America Corp., Credit Suisse Group AG and Royal Bank of Canada are managing the sale, the person said.

Bond Spreads

Relative yields on speculative-grade debt, rated below Baa3 by Moody’s and lower than BBB- by S&P, have expanded 2.97 percentage points since the end of July to 8.55 percentage points, according to Bank of America Merrill Lynch index data. Spreads on bonds rated CCC and lower widened to 1,560 basis points on Oct. 4 from 915 basis points on July 31.

Kinetic said today that third-quarter profit rose 17 to 23 percent as revenue from its LifeCell unit increased. The preliminary results were released to help potential investors evaluate the company’s performance while it plans the bond offering the company said in a statement.

Third-quarter earnings were $89 million to $93 million as worldwide revenue rose 4 to 5 percent, Kinetic said in the statement. The company plans to release full results on Oct. 21.

--With assistance from Michelle Fay Cortez in Minneapolis Editors: Pierre Paulden, Faris Khan

To contact the reporters on this story: Sapna Maheshwari in New York at sapnam@bloomberg.net; Gowri Gurumurthy in New York at gurug@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net


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