A sale of corporate debt that was considered a barometer of U.S. capital markets ended in fiasco, as bankers offered bonds and loans at low prices to fund a $16.5 billion leveraged buyout of software company Citrix.
Investor orders barely covered an $8.55 billion debt package that was offered, with many big money managers and hedge funds refusing to lend to the company, according to people briefed on the matter.
Orders to sell a $4 billion secured bond hit $4.6 billion Monday, the deadline for investors to indicate their willingness to borrow, three people said. Orders for a $4.05 billion US dollar term loan were slightly more robust at $5.5 billion, people familiar with the deal said. Investors generally judge a bond deal as healthy if 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 LBO 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 financing for the purchase of Citrix by Vista Equity Partners and Elliott Management in January. The $8.55 billion offered is part of the entire $15 billion debt package associated with 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 called us to find out what terms we would put on the covered bond deal, they’ve really gone down,” the manager said, noting that the fund typically doesn’t play in high-yield credit.
The lukewarm demand comes despite steep bond discounts that have been raised several times in recent days, as well as a rewrite of investor protections in the loan documents as bankers bowed to creditors’ demands.
Banks tossed Citrix bonds at a discounted price of about 84.5 to 85.5 cents on the dollar, which would boost the yield on debt to between 9.5 and 9.75 percent, well above the “high” 8 percent launched earlier this year. month, according to those with knowledge of the deal.
The loan for sale would be priced at a discount of 92 cents to the dollar at an interest rate 4.5 percentage points above Sofr, the floating rate benchmark, for a return of nearly 10 percent. The bond and loan deals were 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.