A massive sale of corporate debt that was seen as a test of US capital markets ended with disappointing results after bankers were forced to offer low-cost bonds and loans to fund the leveraged buyout of software company Citrix.
Investor orders barely covered the $8.55 billion debt package on offer, with many big money managers and hedge funds refusing to lend to the company, people briefed on the matter said.
Orders to sell a $4 billion secured bond reached $4.6 billion Monday, the initial deadline for investors to indicate their willingness to borrow, three people said. Orders for a $4.05 billion US dollar term loan were more robust at $5.5 billion, people familiar with the deal said. However, investors generally judge a bond deal as healthy when the orders are at least twice the size of the trade.
Low investor interest reflected the fragile state of US credit markets, the lifeblood of the buyout industry. Low-debt companies have faced difficulties in raising funds as the global economy slows and central banks raise interest rates to fight inflation, driving up borrowing costs.
Banks led by Bank of America, Credit Suisse and Goldman Sachs are struggling to get debt off their balance sheets after agreeing in January to finance the purchase of Citrix by Vista Equity Partners and Elliott Management. The $8.55 billion debt offering is part of the entire $15 billion debt package prepared for the deal.
A hedge fund portfolio manager who said he had been approached by Credit Suisse about the covered bond was surprised to hear from the lender.
“If they call us to find out what terms we would put on the secured bond deal, they’re really down the list,” the manager said, noting that the fund is not typically active in high-yield credit. room.
The lukewarm demand comes despite steep discounts on bonds and loans that have deepened significantly in recent days, as well as tighter investor protections in the loan documents that were amended after bankers boasted about creditors’ demands.
Banks tossed Citrix bonds at a discounted price of 83,561 cents on the dollar, which would boost debt yields to 10 percent, well above the “high” range of 8 percent marketed earlier this month, people said. with expertise. of the agreement.
The loan would be priced at a discount of 91 to 92 cents against the dollar at an interest rate 4.5 percentage points above Sofr, the floating rate benchmark, for a yield of 10 percent. The bond and loan deals are expected to close on Tuesday.
“This Citrix deal has shown [banks] can’t just bring a deal to market,” said Andrew Forsyth, senior portfolio manager at Barksdale Investment Management. “And the market has not been tested because the offer was so light. We wondered at what point. . . it becomes a concern.”
Bank of America, Credit Suisse and Goldman declined to comment. Vista and Elliott did not respond to requests for comment.
Additional reporting by Robert Smith in London