A big corporate debt selloff seen as a test of U.S. financial markets ended with disappointing results after bankers were forced to offer cut-price bonds and loans to fund the leveraged buyout of the company. Citrix software company.
Investor orders barely covered $8.55 billion debt package on the offer, with many big fund managers and hedge funds refusing to lend to the company, people briefed on the matter said.
Orders for a $4 billion covered bond sold hit $4.6 billion on Monday, the initial deadline for investors to signal their willingness to lend, three people said. Orders for $4.05 billion American dollars term loans were more robust at $5.5 billion, people familiar with the deal said. However, investors generally judge a bond trade to be sound when orders are at least twice the size of the trade.
Weak investor interest reflected the fragility of US credit markets, which is driving the buyout industry. Companies with low debt ratings have struggled to raise funds as the global economy slows and central banks raising interest rates to fight inflation, which increases borrowing costs.
Banks led by Bank of America, Credit Suisse and Goldman Sachs are struggling to get debt off their balance sheets after agreeing to arrange financing for Vista Equity Partners and Elliott Management’s purchase of Citrix in an agreement reached in January. The $8.55 billion debt offer is part of the $15 billion debt package prepared for the deal.
A hedge fund portfolio manager who said he was approached by Credit Suisse about the covered bond was surprised to hear from the lender.
“If they called us to find out what conditions we would make on the covered bond deal, they really lowered the list,” the manager said, pointing out that the fund does not typically operate in high yield credit. space.
The lukewarm demand comes despite steep bond and loan discounts that have become much deeper in recent days, along with tougher protections for investors in loan documents that were changed after bankers bowed to creditor demands.
Banks were offering Citrix bonds at a discounted price of 83.561 cents on the dollar, which would take the yield on debt to 10%, well above the “high” range of 8% traded earlier this month, said people with knowledge. of the agreement.
The loan was to be priced at a discounted price of 91 to 92 cents on the dollar with an interest rate 4.5 percentage points above Sofr, the benchmark floating interest rate, for a yield of 10 %. The bond and loan agreements are expected to be finalized on Tuesday.
“This agreement with Citrix has shown [banks] can’t just put any deal on the market,” said Andrew Forsyth, senior portfolio manager at Barksdale Investment Management. “And the market hasn’t been tested because the supply has been so low. We wondered when. . . 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