Banks Stuck With $42 Billion Debt Seize Chance to Offload It

The last chance for banks in the US and Europe to get rid of their debt is this year.

As banks try to reduce debt on their balance sheets before the holidays, there has been an opening for deals in the bond and loan markets. Even at steep discounts, offloading the hung debt confines losses to this financial year while also appeasing risk departments.

There could be more to come. A group of banks, including Goldman Sachs Group Inc., are close to a deal to sell a junk loan for over $1 billion to help finance the acquisition of the tea business of Anglo American.

Bill Zox said that if the window is open for hung deals, the banks will jump through it. It can shut again at any time.

Wall Street has had a lot of debt this year. Banks have taken huge mark-to-market losses on deals they underwrote before interest rates rose and investor demand for riskier assets fell. With that backdrop, stabilization of loan prices, which recently recovered to an average of 93 cents on the dollar in the US, has created a fertile ground for deals.

While some debt is being offloaded, more recent buyouts are adding to the pile, including about $13 billion of financing related to Musk's acquisition of Twitter.

The total amount of debt funded by banks for acquisitions in the US and Europe is $42 billion.

Some recent deals have come with steep discounts. According to people close to the matter, there was strong demand for the loan at 89 cents on the dollar and the loan is expected to price in the low- to-mid 80% of face value.

Even at a discount, offloading chunks of hung debt is better for the lender than letting it linger on their books. Apollo Global Management Inc., which raised a $2.4 billion fund, was attracted to the bargain prices.

European Opportunity

In Europe, where the pile of hung debt is smaller, the average price of a loan has risen from their October lows. Along with the issuance of new loan obligations, some deals have arisen.

There were some sales that were on the table for a while. After getting more demand than anticipated, the deal was increased twice. Adding on deals by Caldic and Toi Toi & Dixi Group made the most of the year-end window.

The credit markets are not the only ones.

EMEA

Twelve borrowers tapped the investment grade market on Tuesday, raising at least 5.2 billion euros equivalent, as issuers and investors seized on improved sentiment for one last funding push ahead of a December slowdown.

• Vodafone Group is offering the year’s longest sterling corporate bond as renewed confidence in the currency spurs a November debt sales rebound
• Investec and Segro also offered sterling-denominated deals
• In high yield, gambling firm 888 Holdings is considering tapping credit markets in the near future, after its recent buyout of a rival hindered its ability to generate enough cash to invest in growth
  • The company’s debt structure is heavier than anticipated in the wake of its buyout of gaming peer William Hill, according to a Nov. 29 statement

Asia

Beijing lifted a ban on local share sales by developers in order to alleviate the cash crunch in the sector.

• The country’s junk dollar bonds, dominated by developers, rose at least 1 cent on the dollar, according to traders, with Seazen Group and Country Garden leading the gains
• Spreads on Asia ex-Japan investment-grade dollar bonds tightened at least 3bps Tuesday morning, according to traders, reflecting a broader recovery in risk appetite
• Deal flows are relatively thin, with only two issuers seeking to price new debt

Americas

Equity markets sold off after Federal Reserve officials said that more rate hikes are coming.

• Issuers paid about 8bps in new issue concessions on deals that were 3.5 times covered
• Monday’s issuers were forced to navigate a softer backdrop amid hawkish commentary from New York Fed President John Williams and St. Louis Fed President James Bullard
• For deal updates, click here for the New Issue Monitor
• For more, click here for the Credit Daybook Americas

Adeola Eribake assisted with the task.