Subject category:
Finance, Accounting and Control
Published by:
Darden Business Publishing
Length: 23 pages
Topics:
Bonds; Securities
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Abstract
In November 2000, Kohlberg, Kravis, and Roberts (KKR) purchased Rockwood Specialties Inc, a specialty chemicals company, in a $1.2 billion buyout. Spurred by the favorable market conditions in the first half of 2003, KKR was contemplating refinancing its buyout debt in June of 2003. Merrill Lynch, its underwriter, proposed to refinance the earlier funding in part with a $375 million issue of Senior Subordinated Notes. While there had been a favorable interest rate environment and a strong volume of debt issuance in the first half of 2003, the Rockwood offering still posed some significant challenges. First, it was a first time issue by a privately-held company. Second, KKR’s motivation for the offering and the complex financial structure surrounding it had resulted in a preliminary credit rating of Caa from Moody’s. Students are asked to evaluate and price the high yield issue. The case provides discussion of how credit ratings, market conditions, and organizational structure affect bond yields. There is a brief history of the how high yield market has evolved from the mid-1980s through 2003.
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Abstract
In November 2000, Kohlberg, Kravis, and Roberts (KKR) purchased Rockwood Specialties Inc, a specialty chemicals company, in a $1.2 billion buyout. Spurred by the favorable market conditions in the first half of 2003, KKR was contemplating refinancing its buyout debt in June of 2003. Merrill Lynch, its underwriter, proposed to refinance the earlier funding in part with a $375 million issue of Senior Subordinated Notes. While there had been a favorable interest rate environment and a strong volume of debt issuance in the first half of 2003, the Rockwood offering still posed some significant challenges. First, it was a first time issue by a privately-held company. Second, KKR’s motivation for the offering and the complex financial structure surrounding it had resulted in a preliminary credit rating of Caa from Moody’s. Students are asked to evaluate and price the high yield issue. The case provides discussion of how credit ratings, market conditions, and organizational structure affect bond yields. There is a brief history of the how high yield market has evolved from the mid-1980s through 2003.