A corporate debt sale seen as a barometer of U.S. capital markets ended in a fizzle, with bankers offering discounted bonds and loans to fund a $16.5 billion leveraged buyout of the Citrix software company.
Investor orders barely covered an $8.55 billion debt package, with many fund managers and hedge funds refusing to lend to the company, according to people briefed on the matter.
Orders for a $4 billion covered bond sold hit $4.6 billion on Monday, the deadline for investors to signal their willingness to lend, three people said. Orders for a US$4.05 billion term loan were somewhat stronger at $5.5 billion, people familiar with the deal said. Investors generally judge a bond trade to be sound if the orders are at least twice as large as the size of the trade.
The lack of investor interest reflects the fragility of US credit markets, the engine of the LBO industry. Companies with weak credit ratings have struggled to raise funds as the global economy slows and central banks raise interest rates to fight inflation, raising 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 secure financing for the purchase of Citrix by Vista Equity Partners and Elliott Management as part of a an agreement reached in January. The proposed $8.55 billion is part of the entire $15 billion debt associated with 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 doesn’t typically play high-yield credit.
The lukewarm demand comes despite steep discounts on the bond that have been increased several times in recent days, as well as a rewrite of investor protections in loan documents as bankers bowed to creditor demands.
Banks were offering Citrix bonds at a discount of around 84.5 to 85.5 cents on the dollar, which would bring the yield on debt to between 9.5 and 9.75%, well above the range.” high” of 8% marketed earlier this month, according to people with knowledge of the matter.
The loan for sale was to be priced at 92 cents on the dollar with an interest rate 4.5 percentage points above Sofr, the benchmark variable interest rate, for a yield close to 10%. The bond and loan agreements were 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.