Davide Scigliuzzo and Paula Seligson
Thu, September 29, 2022
(Bloomberg) -- For the second time in two weeks, Wall Street bankers suffered a painful reminder of how quickly risk appetite is evaporating from credit markets as a $3.9 billion debt sale for a leveraged buyout collapsed.
A group of underwriters led by Bank of America Corp. and Barclays Plc pulled the loan and bond offering for telecom provider Brightspeed on Thursday after struggling to attract demand from investors.
The transaction, which was meant to help fund Apollo Global Management Inc.’s purchase of the company, is the latest large acquisition financing to stumble. Banks face significant losses on tens of billions of dollars in buyout debt that they committed to months ago and are trying to offload just as rising interest rates and fears of a deep recession are causing investors to flee risky debt.
Only last week, a separate group of lenders led by Bank of America, Credit Suisse Group AG and Goldman Sachs Group Inc. crystallized losses of around $600 million on the take-private of Citrix Systems Inc., and agreed to keep on their books around $6.5 billion of debt that they weren’t able to sell.
Read more: Citrix Debt Debacle Heralds a Day of Reckoning on Wall Street
Between Citrix and Brightspeed, banks are now expected to fund with their own cash over $11 billion of buyout debt that was originally meant to be syndicated to investors, according to Bloomberg calculations. More looms on the horizon as additional acquisitions approach closing, including deals for the take-private of Nielsen Holdings Plc and Tenneco Inc.
Brightspeed is the new brand for the telecom and broadband assets that Apollo agreed to acquire from Lumen Technologies Inc. last year. The debt offering was expected to include a $2 billion leveraged loan, a $1.9 billion junk bond, and an additional $1 billion loan that banks had already planned to hold. The acquisition is expected to close on Oct. 3, according to a filing.
Representatives for Apollo and Barclays declined to comment. Representatives for Bank of America and Lumen did not respond to requests for comment.
Investors viewed the Brightspeed transaction as having significant execution risk in part because the company is planning a multibillion-dollar capital investment strategy to transition from copper to fiber optic networks.
The cost of borrowing for riskier credits has increased sharply in recent months, with US junk bonds now yielding about 9.57%, according to Bloomberg index data. That’s still below the 11.7% high reached at the beginning of the pandemic.
Banks Said to Shelve $3.9 Billion Debt Sale for Brightspeed LBO
, Bloomberg News
(Bloomberg) -- A group of banks led by Bank of America Corp. and Barclays Plc shelved a roughly $3.9 billion debt offering on Thursday after struggling to attract demand from investors for the deal.
The transaction, which is helping to finance a buyout by Apollo Global Management Inc., is the latest large buyout financing to struggle. Wall Street banks face significant losses on tens of billions of dollars in high-risk leveraged buyout debt that they’re trying to offload, and are finding it increasingly tough to lure investors as yields surge.
The banks underwrote the debt commitment for Apollo’s acquisition of the telecom and broadband assets from Lumen Technologies Inc., which will be run under the Brightspeed brand. That means they would be on the hook to provide the cash themselves and retain the risk on their balance sheets. The deal is expected to close on Oct. 3, according to a filing.
The transaction consisted of a $2 billion leveraged loan and a $1.9 billion junk bond, and an additional $1 billion loan that banks had already planned to hold.
Representatives for Apollo and Barclays declined to comment. Representatives for Bank of America and Lumen did not immediately respond to requests for comment.
Investors viewed the Brightspeed transaction as having significant execution risk in part because Brightspeed is planning a multi-billion dollar capital investment strategy to transition from copper to fiber.
Read more: Banks Struggle to Find Demand for Apollo’s Brightspeed LBO Debt
The cost of borrowing has also increased sharply in recent months, with average junk-bond yields now yielding about 9.57%, according to Bloomberg index data.
(Updates with junk-bond yields. An earlier version of this story corrected the spelling of Bank of America in the first paragraph.)
©2022 Bloomberg L.P.
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