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 Citigroup Inc., Deutsche Bank AG, Goldman, Sachs & Co. and other banks are moving aggressively to sell big blocks of leveraged loans and high-yield bonds to private equity firms, although they're taking quite the haircut to do it.
The Deal's Vipal Monga writes that in their efforts to get the debt off their books the banks are selling well below par.
[Deutsche Bank is] trying to sell parcels of debt at an average price of around 85% of par and is providing financing to the buyers of 3 times equity, sources said. The Frankfurt-based bank is trying to unload roughly $5 billion of debt to Apollo Management LP and Blackstone Group LP, leaving it with over $45 billion of committed leveraged debt on its balance sheet. Apollo and Blackstone, joined by TPG Capital, are also set to buy some $12 billion of loans and bonds from Citigroup "at an average price of under 85% of par, according to sources," Monga wrote. Both banks are offering financing to their debt buyers. Citi's buyers could receive about 4 times leverage to buy about $10 billion in loans and 2.5 times to buy $2 billion of bonds, sources said. The leverage is being offered at a rate under LIBOR plus 100 basis points, which allows the buyers to reasonably aim for an internal rate of return of more than 25%. The financing will have a term of seven years and offers margin holidays to the buyers, meaning they won't have to face margin calls for some initial period if the debt's market price falls. The steepest discount so far has come from Goldman Sachs. The Deal's Jonathan Braude writes: [Goldman] has been forced to accept a price of 65 cents on the €100 million ($158 million) of senior debt from Bain Capital LLC's June 2007 buyout of Germany's biggest yacht builder, Bavaria Yachtbau GmbH, a source confirmed Monday. The sale was of a relatively small part of the overall debt outstanding on the roughly €1.1 billion buyout....Goldman, according to the source, felt it was overexposed to the Bavaria Yacht debt and, since it marked its loans to market, decided that 65 cents was the rate at which it should be sold. At that price it will have been one of the biggest discounts yet offered during the present credit crunch. The debt sales are accelerating the wind-down of hundreds of billions of dollars in committed debt, left over from the megabuyout binge of 2006-2007. When the credit crunch hit last summer, banks were committed to roughly $350 billion in loans and bonds for leveraged buyouts. Citing Bank of America Corp. analysts, Bloomberg estimates that that figure has been reduced to less than $100 billion. - George White See story about Deutsche Bank debt sales from TheDeal.com See story about Goldman Sachs debt sales from TheDeal.com See story about leveraged debt from Bloomberg Categories Deal Video
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