A corporate bond sale seen as a barometer of US capital markets fizzled as bankers offered cheaply priced bonds and loans to fund a leveraged $16.5 billion buyout of software company Citrix.
Investor orders barely covered an offered $8.55 billion debt package.
Orders for the sale of a $4 billion secured bond hit $4.6 billion on Monday, the deadline for investors to signal their readiness to lend, three people said. Orders for a $4.05 billion term loan in U.S. dollars were slightly more resilient at $5.5 billion, people familiar with the deal said. Investors generally judge a bond deal to be healthy when orders are at least twice the deal size.
Weak investor interest reflected the fragile state of US credit markets, the lifeblood of the LBO industry. Companies with poor credit ratings are struggling to raise finance as the global economy slows and central banks raise interest rates to fight inflation, which in turn increases the cost of borrowing.
Banks, led by Bank of America, Credit Suisse and Goldman Sachs, are struggling to deleverage their balance sheets after agreeing to provide financing for Vista Equity Partners and Elliott’s purchase of Citrix in a deal agreed in January to take over management. The $8.55 billion on offer is part of the overall $15 billion debt package associated with the deal.
A hedge fund portfolio manager who reported being approached by Credit Suisse about the secured bond was surprised to hear from the lender.
“When they call us to find out what terms we’d be willing to take on the secured bond deal, they’ve really gone down the list,” the manager said, noting that the fund doesn’t typically invest in high-yield bonds.
The tepid demand comes despite steep haircuts on the bond, which have been raised several times in recent days, and a rewrite of investor protection in the loan documents as bankers bowed to creditors’ demands.
Banks were offering Citrix bonds at a discounted price of about 84.5 to 85.5 cents on the dollar, which would take the yield on the debt to 9.5 to 9.75 percent, well above the “high” 8 percent -Range marketed earlier month, according to people with knowledge of the deal.
The loan for sale was to be offered at a discounted rate of 92 cents on the dollar with an interest rate 4.5 percentage points above Sofr, the floating rate, for a yield of nearly 10 percent. The bond and loan deals should close on Tuesday.
“This deal with Citrix showed [banks] can’t just launch any business,” said Andrew Forsyth, senior portfolio manager at Barksdale Investment Management. “And the market wasn’t tested because supply was so low. We wondered at what point. . . it becomes a worry.”
Bank of America, Credit Suisse and Goldman all declined to comment. Vista and Elliott did not respond to requests for comment.