Wall Street lenders led by Citigroup and Bank of America have been forced to wire a $5.45bn cheque to private equity giant Apollo Global Management to fund its takeover of auto-parts maker Tenneco, cash they came up with themselves after struggling to raise the money through credit markets.
The banks have been marketing a $1.4bn loan and $1bn secured bond to investors, offering large discounts in a bid to lure potential creditors, but investor orders have come up short.
While the banks have not yet shelved the bond and loan offerings, two people briefed on the matter said that the two borrowings were not going well and could end up being pulled.
“It’s on the operating table and the heart isn’t beating but the doctor hasn’t called time of death,” one lender said.
The capital raising for the $7.1bn Tenneco deal, which was agreed in February, has been a thorn in the side of the banks for months now. The fundraising was postponed in July as financial markets sold off, with the surge in interest rates, war in Ukraine and potential economic slowdown weighing heavily on investor interest.
It joins a pile of debt from other leveraged buyouts that have been stuck on bank balance sheets that they have been unable to move, generating large losses for the underwriters. So-called “hung” financings amount to tens of billions of dollars.
Banks in September were only able to sell a fraction of the debt tied to Elliott Management and Vista Equity Partners’s $16.5bn leveraged buyout of software maker Citrix, and ended up holding $6.45bn of the debt themselves. And a group of banks led by Morgan Stanley ended up lending $12.7bn to Elon Musk to fund his $44bn takeover of Twitter themselves, debt they plan to hold on their balance sheet for months or longer.
The banks financing the Tenneco buyout already knew they had a tough sell but have hoped to sell at least part of the debt package, with plans to hold the remaining $3.05bn themselves.
Apollo, Bank of America and Citigroup declined to comment.