Banks fund Tenneco buyout after failed sale attempt

7:23 pm Thursday, November 17th, 2022

By Matt Tracy

WASHINGTON (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)