Franklin Templeton and Apollo Global Management Inc. are among those investors who purchased $750 million debt that backed the leveraged buyout of Citrix Systems Inc. The funding was a brainer as it helped banks to earn hefty fees and kick off 2022 with mega acquisitions. The tightening of monetary policy by the Federal Reserve after the pandemic support saw Wall Street chipping away at risky loans worth billions of dollars clogging their balance sheets.
There are many among the 30 lenders who had financed the leveraged buyout of the workplace software company. Wall street is staring at a dangerous picture selling term loans at a steep discount and incurring more than $600 million loss. There is also the balance of $6.5 billion debts of Citrix, in which the lenders are stuck for more than two months and possibly go forward stuck indefinitely.
The transactions are dependent on the release of the latest audited financials of Citrix, expected early this year.
The Citrix Deal is Seen as a Turnaround.
According to some people, another lender, Diameter Capital Partners, in which Apollo Global has a stake, took some exposure in the $750 million debt. The Citrix funding was seen early this year as a turnaround in the US credit market, signaling the end of easy money provided by the central bank after the interest rate hikes started.
According to data compiled by Bloomberg on the deals conducted in Europe and the US, banks on Wall Street are sitting on an acquisition and debts portfolio of $40 billion. This includes the Twitter Inc. acquisition deal, estimated at around $12.5 billion.
A few lenders have reduced their exposure in recent weeks taking advantage of a stable market. Still, the backlog, among other banks, threatens to curtail further funding exposure in the future.
Distress Sale
The latest offloading in the Citrix exposure reduces around $2.5 billion in debt, which the banks were holding as “Term Loan A” funding. Banks could sell only $8.55 billion of loans and bonds out of more than $15 billion in debt financing for leveraged buyouts in a steep discount move.
The first lien debts, including term loans, were trading at a discount of about 89 cents to the dollar in the secondary capital markets. The second lien funding pricing would depend on when and where the first lien loan is being traded. This is because investors consider the second charge on debts to be risker than the first lien.
Representatives of the lead arrangers to the Citrix funding, including Credit Suisse Group, Bank of America Corp., and Goldman Sachs Group Inc., declined to comment on the development. Franklin Templeton’s representative did not respond along with those of Diameter and Apollo.
December saw banks offloading other debts of Citrix at massive discounts. These subordinated tranches were restructured as second-lien bonds, offering more collateral security than secured loans. However, in the event of a claim on the company’s assets during bankruptcy or restructuring, the first lien loans get precedence.
The balance debt, which is lying unsold, is forcing Wall Street to write down losses. It is better to sell the bulk of debts at discounts, recover something, and deploy elsewhere than to let it stay in the balance sheet as tied-up capital.
As per the last citrix news, second lien bond sales will be clubbed and arranged in a pool that banks have employed to sell the hung debts of Citrix. The one bank that receives the offer is shared with other lenders proportionately.
Other debt deals which banks had funded have found buyers, including $4 billion of loans and bonds tied to the Neilson holdings buyout. Goldman Sachs Group Inc. is negotiating with investors to buy out subordinated debts worth $ 4 billion that lenders had held for months for Citrix Systems’ buyout.
Elliot Investment Management and Vista Equity Partners, who also purchased in the Citrix deal, did not respond to requests for comments.
