Some banks are waking up to a nasty hangover after the LBO credit party: the H1 binge saw them take on board unprecedented amounts of leveraged debt and now they’re having trouble shifting it.
Things are certainly picking up - buyers are beginning to circle. But the banks are finding themselves having to agree to cut prices - as much as 4 per cent according to Bloomberg.
Citi, Credit Suisse, Deutsche and Merrill Lynch sold $9.4bn on loans on Thursday for KKR’s $29bn acquisition of First Data, including $7.6bn of debt at 96 cents on the dollar and $1.8bn at 97. More than they expected, but for less money.
BlackRock, Eaton Vance and Oaktree Capital are all known to be looking a buying large chunks of LBO debt at cheap prices through special new funds. According to Bloomberg:
Oaktree Capital is seeking more than $3 billion to invest in loans, said three people who have read the offering documents. BlackRock, the largest publicly traded money manager in the U.S., and Eaton Vance of Boston also are soliciting investors.
And, as FT Alphaville reported earlier this month, they join Goldman & Lehman, who are both understood to be starting out in the distressed LBO debt business. According to Bloomberg:
Goldman Sachs Group Inc., the largest and most profitable U.S. securities firm, and Lehman Brothers Holdings Inc., the fourth-biggest, are each seeking about $2 billion to buy loans, according to investors who asked not to be identified because the fund raising is private.
Is that the sound of a bandwagon leaving town?
New York-based Kohlberg Kravis Roberts & Co., the buyout firm run by Henry Kravis and George Roberts, is putting together a $2.5 billion fund, four investors said.
Or possibly, a gravy train.
Either way, for private equity sponsored funds it’s an adroit move. If banks don’t sell those loans, who’s going to be funding the next wave of private equity LBOs?