A thick sell-off in corporate debt seen as a test of US capital markets has ended in disappointing results after bankers were forced to offer cut-price bonds and loans to finance the debt-financed acquisition 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 business, people briefed on the matter said.
Orders for a $4 billion covered bond being sold hit $4.6 billion on Monday, the first deadline for investors to signal their willingness to lend, three people said. Orders for a US$4.05 billion term loan were more robust at US$5.5 billion, people familiar with the deal said. However, investors generally consider a bond deal to be healthy when the orders are at least twice the size of the deal.
The lack of investor interest reflected the fragile state of US credit markets, the lifeblood of the buyout industry. Companies with low debt ratings have struggled to raise funds as the global economy slows and central banks raise interest rates to fight inflation, which in turn raises borrowing costs.
Banks led by Bank of America, Credit Suisse and Goldman Sachs have struggled to remove debt from their balance sheets after agreeing to arrange financing for Vista Equity Partners and Elliott Management̵[ads1]7;s purchase of Citrix in a deal agreed in January. 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 reported being contacted by Credit Suisse about the covered bond was surprised to hear from the lender.
“If they’re calling us to find out what terms we would do on the covered bond deal, they’ve really gone down the list,” the manager said, noting that the fund typically doesn’t deal in high-interest credit. room.
The tepid demand comes despite steep discounts on the bond and the loan that deepened significantly in recent days, as well as tougher investor protections in loan documents that were shifted after bankers bowed to creditors’ demands.
Banks pitched Citrix bonds at a discount of 83.561 cents on the dollar, which would lift the yield on the debt to 10 percent, well above the “high” 8 percent range marketed earlier this month, people with knowledge said. of the agreement.
The loan was set to be priced at 91 to 92 cents discounted on the dollar with an interest rate of 4.5 percentage points above Sofr, the floating rate benchmark, at a yield of 10 percent. The bond and loan agreements are expected to be finalized on Tuesday.
“This Citrix deal has shown [banks] can’t just bring any deal to market,” said Andrew Forsyth, senior portfolio manager at Barksdale Investment Management. “And the market hasn’t been tested because the supply has been so small. We’ve been wondering 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