Wall Street Banks Are Trying Everything in Fight to Win Underwriting Deals

Investment banks including Goldman Sachs Group Inc. and Barclays Plc are striving to get a lucrative fee-making machine back in action.

Traditional lenders are so keen to win leveraged buyout financing that some are pitching for subordinated debt deals — the riskiest type of underwriting which they mostly avoided during a bruising past few years. At least one bank is offering payment-in-kind options, which allow interest payments to be deferred, and others are talking to borrowers about so-called pre-capitalizations, which give companies financing before a deal has even gone on the block, according to people familiar with the matter.

Banks are hungry to win the generous fees from buyout deals after a period marked by having debt stuck on their balance sheets, which allowed direct lending powerhouses like Blackstone Inc. and Ares Management Corp. to beat them at their own game. Now, with broadly-syndicated loan and junk-bond markets roaring back, it’s easier for banks to sell on debt, and they’re often able to beat private lenders on price.

“There is a lot of appetite from the banks to underwrite,” said Giacomo Reali, high-yield partner at Linklaters LLP. “In situations where having junior debt in the structure makes sense, banks will want to be competitive and engage.”

Leveraged Loan Prices Have Been Climbing

Banks have already had a few big wins over private credit this year. Morgan Stanley and Goldman were able to poach nearly half of a $5 billion deal to refinance Ardonagh Group Ltd.’s debt from direct lenders. And JPMorgan Chase & Co. and Goldman Sachs won a deal to provide $5 billion in financing to help back KKR & Co.’s purchase of a stake in Cotiviti Inc.