Banks fund Tenneco buyout after failed sale attempt

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17/11/2022 23:16

By Matt Tracy
       WASHINGTON, Nov 17 (Reuters) - A group of banks led by
Bank of America and Citigroup have funded Apollo Global
Management's acquisition of auto parts supplier Tenneco without
being able to sell down a portion of the $5.4 billion debt they
are providing, sources close to the deal said.
    Banks struggled to find demand from junk-bond investors for
$2.4 billion of secured bonds and loans that is part of the debt
package after a weeks-long marketing effort, the sources said.
    It showed the challenges banks face to sell down highly
leveraged debt this quarter as bond yields spiked in response to
a hawkish Fed policy and recessionary fears.
    Since Nov. 3, banks have offered the Tenneco debt at a steep
discount - a $1.4 billion loan at 84 to 85 cents on the dollar
and a $1 billion bond with an 8% coupon and an all-in yield of
12%. The deadline for commitments was earlier this week.
        Bank of America and Citigroup declined to comment.
Apollo did not respond to a request for a comment.
  
    There has been no official announcement on whether the debt
sale has been shelved or postponed but one source close to the
deal insisted marketing efforts were still ongoing.
    The source would not say whether that would mean re-offering
the debt to investors at even juicier terms. 
    The end result is the banks involved are digging into their
own pockets to provide the whole debt for the Tenneco
acquisition which closed on Thursday. 
    Banks in September were forced to hold $6.45 billion of the
debt funding Elliott Management and Vista Equity Partners’
buyout of software maker Citrix, and a Morgan Stanley-led group
of banks provided $12.7 billion of their own money to
billionaire Elon Musk for his takeover of Twitter.
    "You’ve seen a few of these really high flying LBOs from
2021 that priced when the markets were extremely healthy,” said
Sean O’Keefe, director at private investment firm Wasserstein &
Co. 
    “But those are trading down 20 to 25 points from new issue.
So it's almost like investors have seen this cycle occur that
makes them question the outlook of something like Tenneco," he
added.
 (Reporting by Matt Tracy; Editing by Josie Kao)
 ((Matt.Tracy@thomsonreuters.com;))