On July 3, 2007, Kohlberg Kravis Roberts & Co. issued a declaration of independence of sorts from Wall Street banks, the private equity firm's lifeline to debt financing for leveraged buyouts. In the preliminary initial public offering registration statement KKR filed that day, it disclosed a plan to scale back, if not end entirely, the firm's reliance on "third-party sources of capital." Over the years, KKR indicated, it had shelled out a fortune in fees to the banks, and enough was enough! KKR, having recently launched a capital markets group, was determined to in-source a part of its financing and capture some fee income for itself.

Without explicitly saying so, KKR was plotting disintermediation -- cutting out the Wall Street middleman.

Of course, that was a very different era, when the big LBO shops and banks' private equity units would battle each other for deals. The financial crisis has straitened the LBO industry and Wall Street. Business is down and tempers have cooled.

Today, conciliation is in the air. Craig Farr, 37, a former co-head of equity capital markets at Citigroup Inc. recruited by KKR to head the business in 2006, has built a small but thriving capital-markets group whose activities, he insists, mesh seamlessly with those of the banks KKR employs.

"We don't use the 'D' word," says Farr, referring to disintermediation. "We're trying to be a complementary group to our core banking relationships. We think [KKR's in-house unit] can be a profit center over time. But we are very focused on ensuring that our largest Wall Street relationships are incentivized and very comfortable with our co-existence with them in this business."

On June 8, KKR announced a pact with the Boston mutual fund giant Fidelity Investments to sell shares of KKR-underwritten equity offerings to Fidelity's retail customers. The alliance, which Farr initiated and cemented at a meeting in Boston with the head of Fidelity's capital markets team, Mark Haggerty, will significantly bolster KKR's capital markets distribution network.

Farr's group comprises 15 professionals posted to KKR offices in New York, London, Dubai, Hong Kong and Tokyo. To date, the team has underwritten 11 equity and debt offerings, most recently for Sealy Corp., a mattress maker KKR owns. It has led a few placements, including two for Northgate Information Solutions Ltd., which KKR bought in 2008, and it will be the sole arranger for a debt offering by Oriental Brewery Co. Ltd., a South Korean brewer the firm is buying from Anheuser-Busch InBev NA/SV.

Most often, though, KKR has taken a back seat to brand-name banks in the offerings. It has a $1 billion-plus capital base, consisting of two credit lines. Farr's unit will continue to peddle securities solely for KKR portfolio companies.

Although a handful of buyout firms have imported capital markets specialists like Farr, mainly to ensure that securities sales by their portfolio companies are optimally structured and priced, KKR is the only elite standalone buyout operation directly involved in the syndication game. "Our ambition is to build a nice, profitable, growing business, one that is complementary to what Wall Street is already doing, rather than trying to take Wall Street out of the middle," Farr says.

In other words, never say "D."