Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase are offering discounts of as much as 10 cents on the dollar to clear a $231 billion (€158.32 billion) backlog of high-yield bonds and loans.
While lenders reduced the overhang by 32 per cent since July, they are struggling to unload debt from this year's record $438 billion of leveraged buyouts (LBOs) after losses from securities linked to subprime mortgages reduced demand for higher-yielding assets, according to data compiled by Bloomberg.
They sold some bonds at a discount of 10 per cent to face value and loans at 5 per cent below par, according to Barclays. Bankers led by Goldman and Citigroup hold $17.5 billion of debt they could not sell from the purchase of US wireless carrier Alltel.
Lenders including Bank of America, Deutsche Bank and JP Morgan, committed themselves to lend $22.3 billion next year for the purchase of Las Vegas-based casino company Harrah's Entertainment, according to filings with the US Securities and Exchange Commission (SEC).
Banks including Citigroup, Deutsche Bank and Morgan Stanley will provide $22.1 billion for the acquisition of radio broadcaster Clear Channel Communications, while banks including Citigroup and Toronto-Dominion Bank are committed to providing $34.3 billion for the purchase of Canadian telephone company BCE, according to SEC filings.
American LBOs declined to $101.9 billion in the second half from $336.4 billion in the first six months as the US subprime market collapsed. Lower premiums earlier in 2007 allowed private-equity firms led by Kohlberg Kravis Roberts (KKR) and Blackstone Group to pursue the biggest LBOs to date. Henry Kravis, head of New York-based KKR, said in May that the business was in a "golden era".
Banks have $161.9 billion of loans and $69.6 billion of bonds left to distribute, according to JPMorgan data.
In September, KKR's banks sold $9.4 billion of loans to finance the LBO of credit-card processor First Data. The loans, offered at a 4 per cent discount, cost Credit Suisse Group, Deutsche Bank and four others about $360 million, data compiled by Bloomberg show. They issued $2.2 billion of bonds at a loss of $114 million, based on the price of the securities, leaving them with $10.4 billion of debt that still needs to be sold.
Banks scratched $51 billion off the list after firms including JC Flowers and Cerberus Capital Management abandoned deals.
Lenders for Bain Capital and Thomas H Lee Partners need to sell $2.6 billion of bonds and $19.5 billion of loans that will pay for the purchase of Clear Channel.
Banks are raising as much as $23.1 billion in loans and $11.3 billion of notes to fund BCE's takeover by the Ontario Teachers' Pension Plan, the biggest-ever LBO. They have $17.5 billion of debt for the Alltel purchase.
Alltel issued $3.2 billion of its $14 billion in planned loans in November at 96 cents on the dollar. A sale of $7.7 billion of notes failed to attract investors and Alltel pulled that deal. It later sold $1 billion of notes at 91.5 cents on the dollar.
(Bloomberg)
