(Bloomberg) -- A roughly $5 billion debt deal for the buyout of health-care tech company Cotiviti Inc. was poised to become the largest such financing ever provided by private credit firms when first contemplated last year. It now ranks as one of traditional Wall Street’s biggest triumphs against direct lenders.

The about-turn in the closely watched financing is the result of a tie-up between private equity firms KKR & Co. and Veritas Capital — which will jointly own Cotiviti — and their bankers at JPMorgan Chase & Co. and Goldman Sachs Group Inc.

KKR and Veritas relied on their own capital markets teams to do much of the work that’s typically carried out by banks for debt offerings of this size. Yet with the support of the banks the group was able to double the amount of investors participating in the deal, said the people, who asked not to be named discussing a private transaction. Pricing improved from the level originally targeted and was far more favorable compared to what private credit funds had offered.

The deal is the latest example of how the lines are blurring between the roles of private equity firms, private credit lenders and the big Wall Street investment banks that used to be the gatekeepers to debt capital markets. 

Multibillion-dollar buyout financings that once required banks to act as intermediaries between a borrower and investors can now be provided by a small group of private lenders or even syndicated by private equity firms directly to debt buyers. While KKR also has a large private credit lending operation, the firm doesn’t lend to companies owned by its private equity funds. 

Representatives for KKR, Veritas, Cotiviti, JPMorgan and Goldman declined to comment. 

By the time JPMorgan and Goldman signed financing documents around 3 a.m. in New York on Feb. 14, KKR and Veritas had already lined up more than enough buyers for the debt at a margin of around 3.5 to 4 percentage points over the US benchmark, according to the people. And that was before the deal obtained a higher credit rating, they said.

JPMorgan and Goldman officially launched the debt sale later on Feb. 14, hours after KKR announced it had signed an agreement to acquire a 50% stake in Cotiviti from Veritas. Such a fast timeline is unheard of in the leveraged finance market, where banks typically hold debt commitments for months before replacing them with loans or bonds sold to investors.

The banks, which had received inquiries from investors in the run-up to the deal, helped tighten the pricing further to 3.25 percentage points over the Secured Overnight Financing Rate — well below the levels private credit funds had discussed last year. Final pricing details are expected Thursday.

In House

It helped that investors were already familiar with Cotiviti. The company has been a leveraged loan borrower for years under Veritas ownership, and Carlyle Group Inc.’s failed attempt to buy a 50% stake in 2023 had already put a spotlight on the potential financing. The proposed Carlyle deal would have valued Cotiviti at around $15 billion. 

Private credit funds were expected to finance that version of the deal with a $5.5 billion loan that would have ranked as the largest ever provided by direct lenders, Bloomberg News previously reported. KKR’s deal gives Cotiviti a valuation of around $10.5 billion.

KKR and Veritas were able to obtain a B2 rating from Moody’s Investors Service for Cotiviti, which is five steps below investment grade but one notch higher than the company’s old rating. This also helped drive demand from loan investors, the people said.

The two private equity firms acted as bookrunners on the debt sale, meaning they will share in the fees typically paid to investment banks for handling the process.

Most of the big private equity sponsors now have their own capital markets teams to help find the best debt financing for their portfolio companies. But KKR stands out for regularly underwriting debt for other borrowers.

Last year, KKR’s ranking jumped 10 spots to number 18 in the league table for arranging broadly syndicated US leveraged loans, according to data compiled by Bloomberg.

Deals

  • Chandra Daya Investasi has invested in 3-year senior notes as part of a private infrastructure asset-based securities placement by Bayfront Infrastructure Management
  • Ares Management Corp. led a $3.3 billion private credit loan for UK insurance broker Ardonagh Group Ltd., with the debt’s pricing among the lowest seen in direct lending
  • A group of private credit lenders led by KKR & Co. and Oak Hill Advisors provided a $2.775 billion loan to help finance Clarience Technologies’ acquisition of Safe Fleet

Fundraising

  • Goldman Sachs Group Inc.’s asset management division has launched its first European private credit fund for wealthy individuals
  • Australia’s biggest pension funds are losing their appetite for bonds as interest rates peak and are instead ramping up bets on private credit

Job Moves

  • U.S. Bank is launching a new division to provide financial services to private capital firms and global asset managers and has promoted Stephen Jeselson to run the team

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--With assistance from Jeannine Amodeo.

©2024 Bloomberg L.P.