Banks delay some Boots buyout debt: sources

By Tessa Walsh and Richard Barley

LONDON (Reuters) - The banks providing financing for the buyout of Britain's Alliance Boots AB.UL have put syndication of a further 1 billion pounds of second-lien debt on hold due to credit market turmoil, sources familiar with the situation said on Friday.

"The second lien is on hold. We have a bunch of orders but it is not fair to allocate it until market conditions stabilise," a banker close to the deal said.

The move follow's last week's decision to postpone syndication of 5.05 billion of senior debt backing the company's buyout by private equity firm Kohlberg Kravis Roberts & Co (KKR) and Boots deputy chairman Stefano Pessina.

The postponement does not affect the takeover or the company directly, as Alliance Boots has already been delisted and the initial funding raised.

The arranging banks -- led by Deutsche Bank, JP Morgan and UniCredit (HVB) -- decided to press ahead with syndication of the deal's junior second lien and mezzanine tranches after withdrawing the senior debt, offering increased pricing and steep discounts to face value to tempt investors into the subordinated paper.

Increased pricing of 425 basis points and a 96 discount failed to sway second lien investors, but the arranging banks will continue to syndicate the 750 million pounds mezzanine tranche through the summer months.

"The mezzanine tranche has lots of orders and we will continue to work it. It is almost done and we will finish it off through August although we have no set deadline," a banker close to the deal said.

The mezzanine tranche was offered to investors last week with an interest margin of 650 bps and a discount of 95. The mezzanine margin is split 300 bps cash and 350 bps payment in kind.