Doubts on big buy-outs as banks battle to sell loans for $11.3bn SunGard deal
By James Politi in New York and Peter Smith in London
Published: April 28 2005 03:00 | Last updated: April 28 2005 03:00
Investment banks financing the purchase of US data storage group SunGard, the largest leveraged buy-out since the 1980s, are struggling to find buyers for the debt, raising fears that the downturn in high-yield markets threatens a new class of large private equity deals.
Deutsche Bank, JPMorgan and Citigroup recently began syndicating a $4bn (£2.09bn) bank loan, part of the financing of the $11.3bn deal, to hedge funds and other preferred investors before moving on to a formal roadshow.
But early indications of interest in the bank loan and a $3bn bridge loan that will also soon be marketed, have been lukewarm, according to people familiar with the matter.
"The SunGard deal is signed, but the financing is not done by any means. Fingers crossed," said one.
The deal, in which seven private equity groups joined forces for the largest buy-out since Kohlberg Kravis Roberts bought RJR Nabisco in 1989, was seen as a for future deals.
Nervousness about the SunGard financing comes as investors in high-yield markets, a main driver of LBOs, have become wary of taking on risk. If the banks fail to refinance the loans for SunGard, bought in March, they would be left with a large exposure.
A high-yield banker said: "If investors won't take it up, that will make the banks absolutely panic. You never want to be stuck with a bridge loan . .. all the institutions will get very concerned."
The difficulty selling the debt will raise doubts about similar deals such as the $6.6bn purchase of Toys R Us by Bain Capital, KKR and Vornado Realty.
People close to the SunGard banks said they were confident the loans would be sold, partly because of SunGard's stable cash flow. They insisted the high-yield market was not shut but had only temporarily softened.
But private equity deals have already suffered from the waning appetite for risk. Deutsche Bank recently pulled the sale of $825m of high-yield paper to fund KKR's $2.6bn takeover of Masonite International, the Canadian door-maker.
Silver Lake, which led the SunGard consortium, Deutsche Bank, JPMorgan and Citigroup declined to comment.
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