Scarcity of Citrix LBO Debt Selling Orders Indicating Weak Credit Market

The corporate debt sale, seen as a barometer of US capital markets, ended in failure as bankers offered discounted bonds and loans to fund a $16.5 billion purchase of software company Citrix.

Investor requests barely covered the $8.55 billion debt package on offer, with many big money managers and hedge funds refusing to lend to the company, according to people familiar with the matter.

Requests to sell $4 billion in secured bonds reached $4.6 billion on Monday, three people said, the deadline for investors to signal their willingness to lend. People familiar with the deal said requests for a $4.05 billion term loan were somewhat more robust at $5.5 billion. Investors generally judge a bond deal to be healthy if the orders are at least twice the size of the deal.

Weak investor interest reflected the fragile state of US credit markets, the lifeblood of the LBO industry. Low-credit-rated companies have struggled to raise funds as the global economy slows and central banks raise interest rates to combat inflation, thus raising borrowing costs.

Banks led by Bank of America, Credit Suisse and Goldman Sachs are struggling to get rid of debt from their balance sheets after agreeing to provide funding to buy Vista Equity Partners and Elliott Management for Citrix in a deal approved in January. The $8.55 billion offered is part of the entire $15 billion debt package associated with the deal.

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A hedge fund portfolio manager who reported that Credit Suisse had called about the secured bond, was surprised when he heard from the lender.

“If they called us to see what terms we would do about the secured bond deal, they really went on the list,” the manager said, noting that the fund doesn’t usually play in high-yield credit.

The lukewarm demand comes despite steep discounts on bonds that have increased several times in recent days, as well as a rewriting of investor protection measures in loan documents as bankers bowed to creditors’ demands.

Banks have been offering Citrix bonds at a discount of 84.5 to 85.5 cents on the dollar, which would bring the yield on debt to between 9.5 and 9.75 percent, well above the “high” range of 8 percent marketed earlier. month, according to people familiar with the deal.

The loan is priced to sell at a discount of 92 cents on the dollar at an interest rate of 4.5 percentage points above Sofr, the variable interest rate standard, for a yield of close to 10 percent. Bond and loan deals are expected to be completed on Tuesday.

“The Citrix deal has shown [banks] “You can’t just bring any deal to market,” said Andrew Forsyth, senior portfolio manager at Barksdale Investment Management. And it wasn’t market tested because the width was too light. We wondered at what point. . . becomes a concern.”

Bank of America, Credit Suisse and Goldman declined to comment. Vista and Elliott did not respond to requests for comment.

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