Banks see strong demand for Citrix debt after discount – sources

The Citrix Systems logo is seen on a smartphone placed over US dollars in this illustration taken January 31, 2022. REUTERS/Dado Ruvic/Illustration

Sep 9 (Reuters) – Banks seeking to sell some of the debt backing the $16.5 billion leveraged buyout of enterprise software company Citrix Systems Inc (CTXS.O) to investors have received more demand than they can meet, raising the possibility that they will incur a smaller-than-expected loss, people familiar with the matter said on Friday.

Banks led by Bank of America Corp (BAC.N), Credit Suisse Group AG (CSGN.S) and Goldman Sachs Group Inc (GS.N) agreed in January to provide $15 billion in risky debt to investment companies. investment Vista Equity Partners and Elliott Investment Management LP for the acquisition of Citrix.

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

This made Citrix’s debt too cheap in the eyes of investors, forcing banks to discount it when syndicating. The deal has become a key test for banks that are being asked to fund big leveraged buyouts. Many are awaiting the outcome of Citrix’s syndication before taking on new debt commitments.

Banks are currently only syndicating a slice of Citrix’s $15 billion debt package as they assess 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 taking orders for this loan were oversubscribed, the sources added.

The banks reduced the loan to 92 cents on the dollar, which would mean a collective loss for them of hundreds of millions of dollars, the sources added. But strong demand, likely fueled by investor optimism that the junk debt market is stabilizing, could lead banks to offload debt at a lower discount or sell more than they had. originally planned, so they have less to sell down the line. , according to sources.

It is also possible that the banks will sell the debt as originally marketed to investors, the sources said, requesting anonymity 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.

Banks have even more Citrix debt on their books that they are looking to offload onto investors. This includes a euro loan equivalent to $500 million, as well as a bank tranche of $3.5 billion and a second lien term loan of $3.95 billion. The banks also plan to sell some $3 billion worth of Citrix bonds to investors next week.

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

Jitters in the junk debt market weighed on the ability of private equity firms to make new acquisitions. One example was NCR Corp (NCR.N), a maker of cash registers and ATMs with a market capitalization of $4.3 billion with which buyout firm Veritas Capital struggled to negotiate a deal, in partly because of the difficulty in securing enough debt for an acquisition, according to people familiar with the matter.

Reporting by Matt Tracy in Washington and Abigail Summerville in New York; Editing by Greg Roumeliotis and Jonathan Oatis

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