AGENCY COSTS FOR FIRST DATA CORPORATION

KKRs buyout of First Data Corporation in 2007 is a prime example of a leveraged buyout gone wrong,
making a $1billion yearly plus profit firm to losses of hundreds of millions of dollars before its IPO in
2015.
KKR paid $27.5 billion for First Data Corp at a premium of 26.4% of the stock price with the backing of
pension funds, Wall Street Banks, foreign nations investment funds and other backers. The financing for
the buyout was done through $22billion debt and $7billion equity. For the $22billion debt, $14billion was
in senior debt and $8 billion was in BB+ junk bonds. So, First Datas debit increased from 2.3 billion in
2006 to 22.5 billion in 2007. Instead of a growing credit crunch indicting a market slump ahead, KKR
forged ahead and went with the deal in one of the biggest valuation buyouts. The banks involved in the
LBO committed to the deal had to incur a loss of $560 million due to drop in demand of risky debt of
First Data.
After reporting a $1.5 billion profit in 2006, First Data lost $3.8 billion in 2008, and $1.1 billion in 2009.
In addition, First Data could barely make the interest payments till today and had the entire principal
amount of the debt in its books before the IPO in 2015. First Data had to reissue further bonds worth $1.4
billion for refinancing its debt. The company renegotiated their debt by extending their dates till 2019 but
had to pay millions of dollars in fees. The company still remains vulnerable because of its huge debt load
but have got extensions on its debt till 2019. The bond holders still did not receive their principal amount
which they were supposed to receive by 2014-15.
Even in the times of turmoil, the company top management did not change their habits and still incurred
costs in travel through private jets or first class, food and drinks for every company meetings and other
costs which could have been avoided. Until the appointment of current CEO Frank Bisignano in 2013,
these costs were still incurred by the company even though they incurred millions of dollars in losses
every quarter. So, the management did not go for cost cutting measures which would have been in the
best interests of its shareholders. Frank Bisignano went for massive cost cutting measures across the
company including all top management members travelling in economy class which resulted in savings of
a few million dollars.
After the company was bought by KKR, thousands of jobs were shed to reduce costs leading to society
costs.