Wall Street’s $38 Billion Loan Backlog Curbs New Bank Lending

Wall Street is struggling to whittle down the roughly $37.5 billion in risky corporate loans stuck on their books -- and the pile of so-called hung debt may be about to swell further as another large buyout financing stumbles.

A group of banks led by Bank of America Corp. and Citigroup Inc. have just days to try to sell $2.4 billion of debt that will help fund the buyout of auto-parts maker Tenneco Inc. by Apollo Global Management Inc. before the deal closes on Nov. 17.

Even after slapping some of the year’s biggest discounts on the debt, investors still aren’t biting, and the banks are now preparing to fund the deal themselves. Commitments on the loan portion were due Monday, and there’s been no official update for the junk bond, which was scheduled to wrap up last week.

Should Tenneco’s loans and bonds fail to price, it will join the club of risky buyout debt that investors shunned this year across the US and Europe. The backlog of hung debt threatens to extend a five-month drought in bank lending for new LBOs or acquisitions.

“The banks will just stop making new commitments,” said Tim Clark, senior private equity analyst at PitchBook. “They already have to clear the next nine or so that they committed to early in the year and once it’s clear, there’s no guarantee that they’ll commit to new packages, because they’ve already got old debt on their books.”