Where Private Equity Meets Public Debt

Back in October, things were so much smaller. The idea then was that KKR would put up $2 billion of equity, leverage it up to a total of $10 billion by borrowing $8 billion from Citigroup, and then use the total to buy leveraged loans from Citigroup. It was enough to make one’s head spin, but it almost happened: Citi CEO Chuck Prince famously paid a visit to Henry Kravis’s offices on 57th Street to talk about the deal.

In the event, six months later, and with a new CEO at Citi, there’s now a deal for the bank to sell $12 billion of leveraged loans to a consortium of private-equity companies which doesn’t include KKR at all. This, too, is a little bit headspinny: isn’t public debt pretty much the by-definition opposite of private equity? But hey, they’re paying 90 cents on the dollar for what is probably largely their own debt, so it’s got to be a reasonably good deal for them. I wonder if Citigroup will let me buy back my debt at 90 cents on the dollar? Maybe if I borrow another billion or two it might.

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