U.S. Foodservice Cancels Offering

JON SPRINGER

AMSTERDAM — It didn't take long for U.S. Foodservice to be at the center of controversy again.

The food-service distribution business, which is in the process of being spun from Ahold to new private owners in a $7.1 billion deal, last week canceled a bond offering that was to pay for the acquisition when bond traders rejected the offer as too risky.

While officials from Ahold here last week insisted the postponed offering would not interfere with the transaction, which has yet to close, resistance from the bond investors indicated a new caution over highly leveraged deals typical of the recent buyout boom, sources said.

Private equity giants Kohlberg Kravis Roberts and Clayton Dubilier & Rice agreed in May to purchase U.S. Foodservice from Ahold, with intentions of raising approximately 69% of the purchase price with debt, sources said. The deal has been approved by regulators and by Ahold shareholders and was scheduled to close sometime in the second half of the year.

Caro Bamforth, a spokeswoman for Ahold, told SN last week that Ahold “did not anticipate any consequences” as a result of the postponement, which was worth around $3.6 billion in bonds and loans, reports said. Spokesmen for KKR and CD&R were not available last week.

The failure to launch a bond offering indicated a combination of overall market jitters related to interest rates and troubles in the subprime lending market, as well as issues specific to U.S. Foodservice, one bond analyst, who asked not to be identified, told SN last week.

“I waived on it, and everyone I spoke to about it knew better than to get involved. It was just too risky, too aggressive and too highly levered. The feeling is that the price of the deal was off-the-charts high,” the analyst said. “There is also uncertainty in the market as a result of increasing interest rates, and uncertainty related to these collateralized-debt obligations that have been sitting on investors' books. So it seems like rationality and creditworthiness are creeping back into the picture.

“There's a sense that the bond investors who have cooperated with [buyout firms] for years, and financed everything they bought, are finally showing some resistance,” the analyst added.