NEW YORK TheStreet) -- First Data Corp., the payment-processing company purchased in a leveraged buyout by Kohlberg Kravis Roberts at the peak of the credit bubble in 2007, is buckling under debt that pays investors interest four times that of U.S. Treasuries.

First Data's long-term debt totaled $22.4 billion as of Sept. 30, 10.7 times earnings before interest, taxes, depreciation and amortization, or EBITDA, compared with 1.2 times in June 2007, according to Bloomberg data. KKR loaded up First Data with debt to make the acquisition, standard practice among leveraged buyout firms.

First Data's EBITDA was just 1.2 times its interest expense in last year's third quarter, up from 13 times in 2007's second quarter. Dwindling profit reflects not only higher debt but a decline in processing revenue during the deepest economic recession in 80 years.

The Sandy Springs, Ga.-based company was acquired by a unit of KKR in October 2007. The $27.5 billion deal was partially financed by Citigroup ( C), Credit Suisse ( CS), Deutsche Bank ( DB), HSBC ( HBC), Lehman Brothers (since acquired by JPMorgan Chase ( JPM)), Goldman Sachs and Merrill Lynch (since acquired by Bank of America ( BAC)).

Bond Discounts and CDS Protection

First Data's bonds had AA ratings before the 2007 buyout. The 10 bonds totaling $9.8 billion that were mainly issued late in the third quarter of 2007 before the buyout was completed are rated below investment grade, at "Caa1" or "Caa2" by Moody's. The bulk of those bonds mature in September 2015.

The company also has $12 billion in loans due in September 2014.

Credit default swaps that protect against default were selling for 820 basis points Tuesday, up from about 600 basis points previously. In comparison, credit default swap protection for JPMorgan goes for 100 basis points.

Most of the First Data bonds were trading between 82 and 89 cents on the dollar Tuesday. The largest issue, for $3.3 billion with a 10.55% coupon, was trading for 89 cents on the dollar, which works out to a yield of 11.5%.

There's plenty of time for the U.S. economy to turn around and First Data's operating profit to rebound before the $12 billion in loans come due in September 2014 and the bulk of the bonds mature in September 2015. The success of the KKR buyout hinged upon a growing economy and a better environment for the credit-card industry than we have now.

If First Data's processing revenue fails to grow significantly, it's possible that bondholders -- who are enjoying fat interest payments -- may eventually be forced to take it on the chin and swap their bonds at a significant discount for new paper.

-- Written by Philip van Doorn in Jupiter, Fla.

Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.

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