(Bloomberg) — Morgan Stanley is no longer involved in providing financing for KKR & Co.’s purchase of Swedish consumer-health company Karo Healthcare, according to people familiar with the matter.
Morgan Stanley is advising Karo’s owner EQT AB on the sale and had teamed up with Jefferies Financial Group Inc. to offer around €1.1 billion ($1.2 billion) staple financing to potential bidders.
Staple financing is pre-arranged funding used to facilitate an acquisition. While it doesn’t guarantee that the banks win the deal, as others could offer better pricing and terms, the staple is often used and the lenders offering it are typically involved in the ultimate underwriting.
Jefferies, which was also an advisor to EQT, is still involved in the financing along with several other banks, said the people, who asked not to be identified because the information is private.
Representatives for Morgan Stanley, Jefferies and KKR declined to comment. EQT didn’t respond to a request for comment.
Banks are getting cautious about taking on risk as US President Donald Trump’s tariff regime upends markets. Wall Street lenders are desperate to avoid being left with so-called “hung” debt if they can’t move underwritten loans off their balance sheets by the time an acquisition closes — something that happened three years ago when Russia’s invasion of Ukraine soured credit markets.
Company debt sales have ground to a halt in the US, while borrowers including flooring company Tarkett are pulling deals in Europe’s leveraged finance market.
Read: Credit Markets Paralyzed by Trade War, Putting Debt Deals on Ice
While the outlook in primary markets looks grim, the plan is for banks to sell on the debt behind KKR’s acquisition of Karo to private credit firms, according to people familiar with the matter.
A similar situation happened during KKR’s deal to acquire Spanish fertility clinic chain Ivirma Global in 2022. At that time, banks including Morgan Stanley and Credit Suisse shifted €800 million of loan obligations backing the buyout to private credit firms after soaring inflation spurred a series of rapid interest-rate hikes.
Typically, when banks underwrite deals, they subsequently shift the debt into the syndicated leveraged loan market, where collateralized loan obligations are the main buyers.
KKR is acquiring Karo in a deal that values the Stockholm-based company at more than €2.5 billion, Bloomberg reported earlier. The deal and the financing coming together this week defied the turbulence in the market. KKR said in a statement that Karo “operates in a resilient, growing sector.”
Karo has around 460 employees and its products are sold in more than 90 countries, according to its website. The company owns the E45 dermatology brand and also sells products for coughs and colds as well as vitamins.
Citigroup Inc. acted as financial adviser to KKR.
–With assistance from Silas Brown.
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