By Tommy Wilkes and Tracy Rucinski
LONDON/MADRID, April 29 (Reuters) - The U.S. private equity
giant Kohlberg Kravis Roberts has agreed to lend the
Spanish construction materials firm Uralita 320 million
euros after banks refused to loan it any more cash.
As new regulations and rising loan losses force Europe's
banks to cut back on the amount of money they lend to companies,
investment houses such as KKR, Blackstone and
Prudential's M&G are trying to fill the gap by lending directly
to businesses facing a cash crunch.
KKR's asset management arm's (KAM) loan to Uralita is for
seven years, allowing it to repay its bank creditors and
bondholders and giving it more time and funds to develop plans.
Nat Zilkha, co-head of KAM's Special Situations unit, told
Reuters it had agreed to do the deal - its largest European
rescue lending transaction - once it became "very clear they
were not going to get support from their current banks".
Zilkha said banks were "putting a gun" to their clients'
heads in refusing to renew loans, while the policy of amending
and extending loans, common two years ago, was coming to an end.
"These companies are so frustrated, frustrated by banks that
won't support them, frustrated by hedge funds that are buying
their debt in the secondary market and just looking for
short-term gains," he said in a telephone interview.
KKR expects to earn significantly higher returns than those
earned by banks from direct lending, but Zilkha declined to
disclose the precise terms of this transaction, KKR's sixth such
deal in Europe.
Last year, Uralita paid 26.9 million euros in interest and
other financial costs, or about 8.4 percent of the 319.2 million
euros of debt it held at year-end, according to a presentation
of its 2012 results published in February.
With European banks still battling a slowdown domestic
economies and struggling to offload assets, their pullback is
likely to continue, Zilkha said, in some cases ending
decades-old relationships between corporate treasurers and their
Last week, Santander reported a 26 percent drop in
first-quarter earnings, hit by rising bad loans, while Spain's
second-biggest bank, BBVA, reported a drop in lending
income in its home market, where net interest income was down 9
percent from a year earlier.
KKR has about $3 billion in assets in a "rescue lending"
fund targeting what it believes are good companies with bad
balance sheets, and is looking closely at more opportunities in
Spain, Portugal, Britain, Holland and France.
Zilkha said the Madrid-based company, highly tied to the
battered Spanish construction industry and with a chunk of
soon-to-mature debt, is just the sort of business that banks now
want to avoid.
"Certainly a lot of people in banks would look at this
combination of factors and say 'No thanks' ... But we look for
just these sorts of transactions," he said.
The Uralita deal involved a team of three from KKR's Special
Situations group, two members of the firm's private equity unit
who work closely with the industrial sector and its head of
Spanish operations, Jesus Olmos.