KKR & Co. has reached a deal with a group of private credit lenders led by Blue Owl Capital Inc. that will help it recapitalize its portfolio company PetVet Care Centers, according to people with knowledge of the matter.
The private equity firm has received a new $2.3 billion unitranche loan for the veterinary hospital chain from a lender group that also includes Ares Management Corp., Oaktree Capital Management, and Oak Hill Advisors, said the people, who asked not to be named discussing a private transaction.
The loan pays an interest margin of 6 percentage points over the Secured Overnight Financing Rate, they said. It was issued at a discounted price of 98 cents on the dollar and will mature in seven years, according to one of the people.
As part of the recapitalization, PetVet will also receive $400 million of preferred equity from third-party investors and $600 million of additional common equity from KKR, the same person said. PetVet plans to use proceeds to repay over $3 billion of outstanding debt that matures starting in 2025.
Demand for the unitranche and the preferred equity, which were arranged by KKR’s capital markets division, exceeded the size of the offerings, the person said. Blue Owl will serve as administrative agent on the new loan.
Representatives for KKR, Blue Owl, Ares, Oaktree, and Oak Hill declined to comment. PetVet Care Centers did not respond to a request for comment.
PetVet is the latest company to tap the $1.5 trillion private credit market to refinance debt that was originally broadly syndicated to debt investors. Hyland Software Inc., Finastra Group Holdings Ltd. and Tecomet all took a similar route in recent months, Bloomberg previously reported. KKR’s capital markets unit and Jefferies Financial Group Inc. arranged PetVet’s prior debt offerings, according to data compiled by Bloomberg.
Read more: Private Credit’s $10 Billion Win Is Bad News for Wall Street
The recapitalization underscores how private equity firms are occasionally willing to provide extra equity to portfolio companies that need to refinance debt in a higher interest rate environment. Earlier this year, KKR injected an additional $200 million of equity into Heartland Dental LLC in a separate refinancing transaction, Bloomberg reported.
KKR acquired PetVet from Ontario Teachers’ Pension Plan, L Catterton and other shareholders in 2017. The Westport, Connecticut-based company acquires and operates independent veterinary clinics and hospitals. It runs over 450 centers across the US, according to its website.
(Updates throughout with more details on lenders and the loan terms.)
