Buyout Firms Face Daunting Interest Bill

The biggest leveraged buyout in history is going to cost the private equity firms a whole lot more in interest than it might have just four months ago.

The biggest leveraged buyout in history is going to cost the private equity firms a whole lot more in interest than it might have just four months ago. Bloomberg News reports that rising interest rates – the highest in five years – are poised to empty the pockets of Kohlberg Kravis Roberts and Bain Capital as they looks to borrow $16 billion for the acquisition of hospital operator HCA. “The market has changed,” Ken Moore of Greenwich, Conn.-based private equity firm First Reserve Corp. told Bloomberg News. And how: Had the deal been completed in April, says Bloomberg News, the firms would have paid $100 million a year less in interest than they will now. Because of the additional expenditure, such buyouts will make such deals less profitable. And lest one should think the presence hedge among lenders would keep rates in check, forget about it. With “more balance between investor demand for loans and supply,” Thomas Finke of Boston-based Babson Capital Management said in a Bloomberg News interview, it will be “harder to get a covenant-lite loan deal done.”