This Is What "Par Value" Is For
An interesting return to nineteenth-century practice by KKR. In the nineteeth century they told you how much extra money they might call on you for if capital requirements turned out to be larger than initially projected:
KKR asks for cash to help buy-out portfolio: By Martin Arnold in London and Henny Sender in New York: Kohlberg Kravis Roberts has asked investors to contribute as much as €730m ($970m) to support struggling portfolio companies in its 2005 European buy-out fund, amid preparations for a rush of similar moves by other big private equity groups. Investors are wary of the so-called annex funds that are being prepared by several private equity groups to finance debt restructurings and top-up investments at companies held by their recent buy-out funds, which are running short of cash.
The move by KKR emerged as the private equity group announced Friday that it was delaying the deadline until August for deciding whether to proceed with its planned New York initial public offering, via a delisting of its Amsterdam-listed fund. The planned annex fund by KKR – in which the private equity group plans to invest €16m of its own money – mirrors similar moves by venture capital funds after the dotcom bubble burst and they were left short of cash to support their investments. KKR plans to waive its 1.5 per cent management fee on the planned annex fund and to allow investors to transfer commitments into the new vehicle from its third European fund, which was raised last year and is largely uninvested....
One large European private equity investor said annex funds ran the risk that they could be used to prop up failing investments. “A lot of [private equity] general partners are looking at annex funds,” said the investor. “But one needs to be very careful as there are plenty of pitfalls out there, not least the risk of throwing good money after bad.” To determine which companies to support and which to abandon will be one of the greatest challenges facing the buyout firms in coming months....
Several of the companies in KKR’s 2005 fund have been written down by more than 90 per cent, such as ProSiebenSat.1, the German pay-TV broadcaster; Pages Jaunes, the French directories business; and NXP, the Dutch chipmaker. KKR has been buying debt at big discounts in some of the companies, such as ProSeibenSat.1. KKR’s biggest European deal is Alliance Boots, the pharmacy chain, which was Europe’s largest ever leveraged buy-out when it was bought for £11.1bn in May 2007. Boots has been written down by 41 per cent, partly due to the weaker pound.
