The banks financing buyout firm Apollo Global Management Inc’s $5.4 billion acquisition of auto parts maker Tenneco Inc 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 and Bank of America Corp 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.”
Source: Reuters.com