Fee-Starved Banks Are Getting $38 Billion of Junk Buyout Deals

(Bloomberg) -- A spate of big-ticket debt sales show the leveraged buyout market is tentatively kicking back into gear, offering some relief to investment bankers after a moribund period for dealmaking.

Wall Street lenders are working on at least $38 billion worth of bonds and loans for buyouts in dollars and euros, according to analysis by Bloomberg. This new money includes the highly-anticipated €7.45 billion ($8.04 billion) debt sale backing Clayton Dubilier & Rice’s purchase of a stake in Sanofi SA’s consumer health unit, and the $4.3 billion debt to support Apollo Global Management Inc.’s Novolex’s acquisition of Pactiv Evergreen Inc.

Those deals are already in the market, and more are on tap. Notably, there’s $4.25 billion in bonds and loans backing Sycamore Partners’ buyout of Boots, which is part of the bigger Walgreens Boots Alliance Inc. take-private. In the dollar market, buyout-related financings comprised more than 30% of new leveraged loan activity this month, up from around 8% in January and February, according to data compiled by Bloomberg.

“M&A pipeline feels real and there is more activity,” said Martin Luehrs, head of global capital markets at Morgan Stanley Europe SE. “Despite the sporadic periods of volatility, the fundamentals remain strong, and the debt markets have capacity for additional new deals.”

Banks have been eager to get the lucrative fee-making machine of leveraged buyouts back in action after a prolonged hiatus of mergers and acquisitions, and a period that saw private credit firms encroach into traditional Wall Street territory. Investors are also keen to put money to work in new deals following robust inflows into credit funds and collateralized loan obligations, the biggest buyers of leveraged loans.

But it’s not all smooth sailing. US President Donald Trump’s trade wars have created a backdrop of volatility, resulting in several US and European junk loan deals being shelved in recent weeks, though those were mostly repricings rather than new money.

Global Volatility

Even on the biggest deals, like Sanofi’s Opella, pre-marketing has become critical, allowing bankers to gauge interest and get anchor orders from a select group of investors.

Some companies are also offering investors friendlier terms to get transactions done amid geopolitical uncertainty. Canadian auto parts maker ABC Technologies Holdings Inc. recently launched a debt financing to support its purchase of TI Fluid Systems Plc. The package includes a $900 million loan which is being marketed at a steep discount to compensate investors for Canada-directed tariffs.

“There are more opportunities for a discount. CLOs can be a little bit more picky with what they do. And you’re seeing that transmit into the primary market,” said Michael Best, a managing director for Barings who focuses on multi-asset credit strategies.

As for Boots, banks are keen to offload the loans and bonds as quickly as possible, given they are on the hook for the risk. Once all the documents are in order, they’re expected to bring the deal to market toward the end of the second quarter, according to people familiar with the matter, who asked not to be identified because the matter is private.

Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co., UBS Group AG and Wells Fargo & Co, which are among banks leading the Walgreen Boots financing, either declined to comment or didn’t immediately respond to requests for comment.

“Given recent volatility, there is a higher degree of urgency for any credit looking to access the market right now,” said Cade Thompson, global co-head of KKR & Co.’s debt capital markets unit.

Despite the uptick, M&A is still a far cry from where bankers hoped the market would be, and the Trump-driven deal boom that bankers had been hoping for hasn’t happened.

Still, there are some potential big deals to come. BASF SE hired banks to advise it on the potential sale of its coatings business, while buyout firms are considering bids for Nestle SA’s water business, which could be valued at about €5 billion.

But banks will undoubtedly face fierce competition to finance any deals that come this year, especially as private credit funds are generally better at executing deals in uncertain times.

Rob Fullerton, global head of leveraged finance at Jefferies LLC, is still positive on the return of deals. “When you look at the age of private equity’s portfolios, and look at liquidity in the BSL and direct lending market — this wave of business that we thought was going to happen will,” he said. “It is just delayed.”

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