Wall Street Rides Loan-Market Rally to Sell Risky Buyout Debt
Slowly but surely, investment bankers from New York to London are chipping away at the tens of billions of dollars in leveraged buyout debt that remains famously stuck on their balance sheets.
As loan prices in the US and Europe stage a spirited rebound, global banks are managing to sell down small chunks of risky financing packages that powered debt-fueled acquisitions in the low-rate era. That’s no mean feat given the diminished investor appetite for the obligations just a month ago.
Underwriters for the buyout of Citrix Systems Inc. have offloaded another sliver of a massive debt package that they were left saddled with during last year’s market slump. Other Wall Street institutions led by UBS Group AG are holding meetings to offload loans for the buyout of Roper Technologies Inc., while a roughly $2 billion loan for NielsenIQ is expected to start pre-marketing soon.
There’s a long way to go before Wall Street manages to flog off the bulk of the risky loans and bonds left on their books to institutional investors — a burden that has clogged up the fee-rich M&A machine and changed the power dynamics in the risky lending market.
But some investors are betting the loan rally has room to run if global growth holds up, a boon for bankers and private equity executives grappling with the slowdown in deals.
“As long as the economy doesn’t disappoint the markets’ currently constructive expectations for a soft landing, returns have a fighting chance at holding up,” said Jeremy Burton, a portfolio manager at PineBridge Investments.
Risky credit has rallied in tandem with a global rebound across assets, a move attributed to growing bets that the Federal Reserve will secure a soft economic landing, just as credit managers adopt fresh positions for the year ahead. A flurry in new collateralized loan obligations — traditionally one of the biggest drivers of demand for leveraged debt — is also helping market sentiment. January saw a big spike in fresh CLOs in the US, worth over $3.2 billion.