According to Bloomberg, market woes have left Goldman Sachs Group Inc. (GS), Barclays Plc (BARC), Bank of America Corp. (BAC), and other Wall Street banks unable to get rid of at least $1.6B of “unwanted leveraged buyout debt” as investors continue to run from high-risk assets in the wake of fears about the global economy. A leveraged buyout (LBO) involves the acquiring of a company using borrowed funds. The assets of the company that is acquired, as well as the acquiring company’s assets, usually serve as collateral. LBOs make it possible for companies to get involved in big acquisitions without having to use a lot of capital.
Bloomberg reports that as of the 22nd of December, at least four loan sales involving acquisitions and buyouts had yet to “clear the market” leaving banks with no choice but to retain the debt on their books, including:
· A group led by Goldman Sachs in charge of the financing for First Reserve’s acquisition of pipeline operator Blue Racer was expected to end the year holding a $516M loan.
· Apollo Infrastructure “shelved” a $275M loan involved in Apollo Global Management LLC’s $1B acquisition of a portfolio that came from GE Capital’s Energy Financial Services. The loan is expected to go back out in 2019 once the markets calm down.
· While C & D Technologies’ acquisition of Trojan Battery closed last month, Bank of America-led underwriters reportedly were unable to rid themselves of a $400M loan involved in the deal.
Meantime, investors also continue to flee from loan mutual funds holding leveraged loans. According to Seeking Alpha, Lipper reports that during the week that concluded on December 19, investors pulled some $3B net from US loan mutual funds and another $300M from exchange-traded loan funds resulting in the largest recorded outflow of this kind to date.
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