Scarce orders to sell Citrix LBO debt a sign of weak credit market

Scarce orders to sell Citrix LBO debt a sign of weak credit market

A corporate debt sale seen as a barometer of US capital markets was ending in failure as bankers offered cut-rate bonds and loans to finance a $16.5 billion leveraged buyout of the software company. Citrix.

Investor orders barely covered an $8.55 billion debt package on offer, with many big fund managers and hedge funds refusing to lend to the firm, according to people briefed on the matter.

Orders for a $4 billion covered bond to be sold hit $4.6 billion on Monday, the deadline for investors to signal their willingness to lend, three people said. Requests for a US$4.05 billion term loan were slightly stronger at US$5.5 billion, people familiar with the deal said. Investors generally consider a bond trade to be healthy if the orders are at least twice the size of the trade.

The lackluster investor interest reflected the fragile state of US credit markets, the lifeblood of the LBO 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 drives up borrowing costs.

Banks led by Bank of America, Credit Suisse and Goldman Sachs have been struggling to shed debt from their balance sheets after agreeing to finance Vista Equity Partners and Elliott Management’s purchase of Citrix in a deal agreed in January. The $8.55 billion being offered is a part of the total $15 billion debt package associated with the deal.

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A hedge fund portfolio manager who reported being contacted by Credit Suisse about the covered bond was surprised to learn from the lender.

“If they’re calling us to find out what terms we would agree to in the covered bond deal, they’ve really gone down the list,” the manager said, noting the fund doesn’t typically play high-yield credit.

The lukewarm demand comes despite deep discounts on the bond that have been increased several times in recent days, as well as new wording of investor protections in the loan documents, as bankers bowed to creditor claims.

Banks were offering Citrix bonds at a discounted price of about 84.5 to 85.5 cents on the dollar, which would push the yield on the debt to between 9.5 and 9.75 percent, well above the range. “high” 8 percent that was traded earlier this year. month, according to people with knowledge of the business.

The loan for sale was priced at a discount of 92 cents on the dollar with an interest rate 4.5 percentage points above Sofr, the benchmark floating rate, for a yield of about 10 percent. The bond and loan deals were expected to be finalized on Tuesday.

“This Citrix deal has shown [banks] you can’t bring just any deal to market,” said Andrew Forsyth, senior portfolio manager at Barksdale Investment Management. “And the market has not been tested because the offer has been very scarce. We have 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.

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