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Wall Street suffers $1.5bn loss on Citrix buyout loans

Wall Avenue funding banks that financed final yr’s leveraged buyout of tech firm Citrix have misplaced roughly $1.5bn after promoting off remnants of a deal struck because the period of low cost cash was coming to an finish, in response to individuals aware of the matter.

Goldman Sachs, Financial institution of America, Credit score Suisse and 30 different lenders on Tuesday bought $3.84bn of junior bonds backing Elliott Administration and Vista Fairness Companions’ $16.5bn buyout of Citrix.

The bonds are among the many remaining items of a multibillion-dollar financing package deal that the banks had saved on their very own stability sheets after a sell-off in monetary markets wreaked havoc on Wall Avenue’s dealmaking machine.

The banks bought the junior bonds at a steep 21 per cent low cost, or about 79 cents on the greenback, in response to individuals with information of the matter. The notes, which is able to mature in September 2029, will yield about 14 per cent. The sale generated a lack of about $675mn for the banks.

The Citrix deal was struck in January 2022, proper earlier than the US Federal Reserve started to aggressively increase rates of interest in a bid to curb inflation. The Fed motion despatched bond costs spiralling decrease, inflicting painful losses on banks that had agreed to lend at decrease charges.

Banks have been unable to promote debt from a number of marquee leveraged buyouts, together with Elon Musk’s $44bn takeover of Twitter and Apollo’s $7.1bn buy of auto elements maker Tenneco. In Citrix’s case, the banks had been compelled final yr to place up their very own money to fund the takeover.

The turmoil in financing markets and fears of a looming recession have made it exhausting for personal fairness teams to search out reasonably priced buyout financing from banks. As an alternative, they’re more and more turning to personal credit score suppliers, who’ve been in a position to write bigger loans as pension plans, endowments and sovereign wealth funds have piled into their funds.

A few of these fund managers, together with Carlyle and HPS Funding Companions, bought the brand new Citrix debt bought this week, enticed by the excessive returns on provide, individuals briefed on the matter mentioned. Elliott additionally purchased a number of the bonds, including to an funding it made final yr when it spent $1bn on extra senior Citrix debt.

Goldman Sachs, Financial institution of America, Credit score Suisse, Elliott and Vista declined to remark.

Goldman and counterparts throughout Wall Avenue had been canvassing buyers for months to search out patrons for the debt tied to the Citrix acquisition.

The bond sale on Tuesday pays off many of the Citrix debt that remained on financial institution stability sheets after an $8.55bn bond and mortgage sale final September and a handful of block trades of Citrix time period loans value about $2bn in December and January.

The banks misplaced greater than $600mn on the September sale and crystallised further paper losses on the block trades.

Advertising paperwork for the junior bonds bought this week seen by the Monetary Instances mentioned Citrix has laid off about 15 per cent of its mixed employees in a cost-cutting drive that it hopes will reserve it $485mn a yr. S&P has rated the bonds single-B minus, among the many riskiest scores it assigns.

Steven McDonald, an analyst at S&P World, mentioned the progress Citrix had made “tempers the chance of integration mis-steps and cost-saving delays and bolsters our confidence that its bettering profitability and money movement era will assist a gradual discount in its leverage”.