Banks see strong demand for Citrix debt from discount

Banks trying to cover some of the debt to cover the 16.5 billion leveraged buyout of enterprise software company Citrix Systems Inc with the matter said on September 9.

Banks led by Bank of America Corp, Credit Suisse Group AG and Goldman Sachs Group Inc agreed in January to lend $15 billion in junk to investment firms Vista Equity Partners and Elliott Investment Management LP to acquire Citrix – to provide rating, Reuters reports.

As with all such deals, the banks syndicate the debt to investors to get it off their books and recycle their capital. But the market turned after the deal was signed as rampant inflation prompted central banks to hike interest rates.

This made Citrix bonds look too cheap in the eyes of investors and forced banks to discount them when syndicating them. The deal has become a key test for banks asked to fund large leveraged buyouts. Many are waiting for the outcome of the Citrix syndication before making new debt commitments.

Banks are currently syndicating only part of Citrix’s $15 billion debt package as they gauge investor demand. They are marketing a $4.05 billion term loan with an annual interest rate 450 basis points above the SOFR benchmark, the sources said. Their books, which are taking orders for this loan, are oversubscribed, the sources added.

The banks have discounted the loan to 92 cents on the dollar, which would result in a collective loss for them of hundreds of millions of dollars, the sources added. But strong demand for it, likely fueled by investor optimism that the junk debt market is stabilizing, could see banks dump the debt at a smaller discount or sell more than originally planned, leaving them with less to sell them later, the sources said.

It’s also possible that the banks will sell the debt to investors as originally marketed, the sources said, asking not to be identified as the matter is confidential. Bank of America, Credit Suisse and Goldman Sachs declined to comment.

Investors have until September 19 to commit to the Citrix loan.

The banks have even more Citrix debt on their books that they want to pass on to investors. These include a US$500 million euro loan, as well as a US$3.5 billion bank tranche and a US$3.95 billion second lien. The banks also plan to sell around $3 billion worth of Citrix bonds to investors next week.

Most banks have held leveraged buyout debt on their books until the market improves. Only a handful of loans were syndicated at a significant discount this year. That includes drugmaker Covis Pharma’s $595 million term loan, which sold in February at 90 cents on the dollar.

The jitters of the junk debt market have weighed on private equity firms’ ability to make new acquisitions. One example is NCR Corp, a $4.3 billion market cap maker of cash registers and ATMs, with which buyout firm Veritas Capital has struggled to negotiate a deal, in part because of difficulty in raising enough debt for an acquisition obtain, according to the report, people who are familiar with the matter.