Banks plan to sell Tenneco buyout debt next week -sources

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28/10/2022 21:54

By Matt Tracy and Shankar Ramakrishnan
       NEW YORK, Oct 28 (Reuters) - The banks financing buyout
firm Apollo Global Management Inc's  APO.N  $5.4 billion
acquisition of auto parts maker Tenneco Inc  TEN.N  aim to start
selling a chunk of the junk-rated debt to investors next week,
two people familiar with the matter said on Friday.
    It is the latest sign that the market for such debt may be
thawing. Banks face billions of dollars in industrywide losses
as a result of committing to fund leveraged buyouts before
markets were roiled by fears of a potential recession earlier
this year, making the debt they extended appear too cheap in the
eyes of many investors.
    Only 23 new junk-rated bond offerings priced in the third
quarter, totaling $18.91 billion, compared with $107.7 billion
raised by 154 deals in the same period a year earlier, according
to data from Informa Global Markets. Just five new high-yield
deals have priced in October so far, for a total of $3.7
billion.
    Banks led by Citigroup Inc  C.N  and Bank of America Corp
 BAC.N  aim to begin marketing a portion of the Tenneco debt
package's secured portion as early as next week, said one of the
sources. The package consists of a $2.4 billion leveraged loan,
a $2 billion secured bond, and a $1 billion unsecured bond.
    Citigroup and Bank of America declined to comment. Tenneco
and Apollo did not immediately respond to requests for comment.
    In a sign of recovering risk appetite among credit
investors, high-yield funds attracted $4.7 billion of inflows in
the last two weeks, reversing all post-Labor Day outflows, and
junk-bond spreads tightened some 74 basis points this month. A
basis point is one-hundredth of a percentage point. 
    This activity is rekindling hope among banks that they may
not have to suffer big loses to shed junk-rated debt from their
balance sheet. They took a hit in September, when a group of
them led by Bank of America booked a $700 million loss by
selling an $8.55 billion debt package backing the leveraged
buyout of software maker Citrix Systems. 
    If the Tenneco syndication goes well, banks are sitting on
plenty of junk-rated debt they may seek to offload. This
includes $11 billion in debt backing the takeover of media
analytics company Nielsen and $13 billion of debt for Elon
Musk’s acquisition of Twitter.
    Tenneco said on Friday that its merger received its final
regulatory approval from the European Commission, and that it
expects to complete the transaction in mid-November, after
completing "certain debt financing activities."
 (Reporting by Matt Tracy in Washington and Shankar Ramakrishnan
in New York
Editing by Matthew Lewis)
 ((Matt.Tracy@thomsonreuters.com;
Shankar.Ramakrishnan@thomsonreuters.com))