Fitch: KKR Acquisition Positive for Avoca
Oct 28 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings says KKR & Co L.P.'s (A/Stable) recent announcement that it will acquire Avoca Capital Holdings is positive for Avoca and hence will not affect its 'Highest Standards' Asset Manager Rating. The transaction is expected to close in Q114.
Fitch sees synergies between Avoca and KKR. Specifically, Avoca complements KKR's business in Europe, which is largely focussed on origination; however, there may be potential conflicts of interest between the origination and asset management sides of the business. The combined total assets under management (AUM) of KKR's global credit management and Avoca's European credit management business will be approximately USD28bn, of which around USD8bn is currently managed by Avoca.
Fitch believes that the acquisition will support the growth of products managed by Avoca. This growth will be supported on the one hand by KKR's brand and distribution capability and on the other by KKR's ability to meet European risk retention rules in new CLO issuance. From January 2014, all European CLO originators or sponsors will be required to retain a 5% interest in any new CLO issue throughout its life. Smaller asset managers with less financial resources are less able to meet this requirement than those owned by or part of entities with significant financial resources. New CLO issuance in Europe recommenced in 2013 with six CLOS totalling approximately USD2bn issued in Q213.
Fitch expects operational risk associated with the transaction to be low: Avoca staff will become employees KKR and, operationally, there will be no change to investment reporting lines, processes, systems or locations in the short-term. Furthermore, measures have been taken to incentivise retention of senior Avoca staff.
Fitch will monitor the progress of the transaction closely.
Fitch affirmed Avoca's 'Highest Standards' rating on 19 July 2013. Asset manager operations in the 'Highest Standards' category demonstrate an operational framework that Fitch considers superior relative to international institutional investor standards.
