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Buyout Bubble Bursts As Banks Pull Carlyle's 'Biggest LBO Of The Year' Bond Deal Amid Soaring Costs

Tyler Durden's picture




 

Ten years after Symantec paid $13.5bn for Veritas, Carlyle Group agreed in August to buy the data-storage business for just $8 billion (the biggest LBO of the year). Of course, the buyout deal made sense when the cost of funding was negligible and The Fed had your back but, as Bloomberg reports, amid soaring borrowing costs, banks have pulled the $5.5 billion debt offering for Veritas signaling a clear end to the reach-for-yield, nothing is a problem, bond market's risk appetite.. and if 'growthy' deals like this are being killed, what does that say for distressed bets on Energy M&A deals?

As Bloomberg noted earlier,

The banks backing Carlyle Group LP’s $8 billion buyout of Symantec Corp.’s data-storage business are facing one of the costliest debt deals of the year to offload part of the financing in the corporate-bond market.

 

As investors squirm at the amount of debt being piled onto the unit, known as Veritas, underwriters are discussing yields of 11.5 percent to 12.5 percent to lure potential buyers to a $1.775 billion junk-rated portion of the debt, according to people with knowledge of the talks. That would be one of the highest bond yields of 2015 and shows just how risk-averse fixed-income investors have become as the global economy cools and the U.S. Federal Reserve moves to raise interest rates for the first time in almost a decade.

 

Borrowing costs on junk bonds are soaring back toward a three-year high set last month as investors grow wary of increasing their exposure to risky assets in the credit markets. That is beginning to impact banks that have committed to finance buyouts in the last few months and are now finding it difficult to syndicate the debt.

And it seems the costs were just too much...

  • *BANKS SAID TO PULL $5.5 BLN DEBT OFFERING FOR VERITAS BUYOUT
  • *BANKS SAID TO POSTPONE BOTH BOND AND LOAN OFFERINGS FOR VERITAS

This is the 24th loan pulled year-to-date, according to Bloomberg - and by far the largest having already been downsized.

Veritas, which postponed its debt offering due to market conditions, is the second LBO deal to retreat from the market this year after Presidio Inc’s $400m 8NC3 sr notes in Jan.

LBOs start to lose their efficiency as cost of funding soars...

 

And with broad-based corporate leverage already at record highs, it appears the credit cycle has well and truly turned.

 

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Tue, 11/17/2015 - 13:14 | 6804882 Latina Lover
Latina Lover's picture

"what does that say for distressed bets on Energy M&A deals?"

To use a technical term, it means their investors are fucked.

Tue, 11/17/2015 - 13:50 | 6805003 Dubaibanker
Dubaibanker's picture

I believe that between 2007-2014 most deals occurred because the billionaires and PE companies bought everything with cheap funding, excess liquidity, cash of billionaires etc. while creating more division between the haves and the have yachts!

Now that the whole world is unemployed (except China) and terror is the new tool (instead of just religion or marriage) to control the masses, the million (or is it a billion?) dollar question is: WHO WILL THESE BILLIONAIRES AND PE FUNDS SELL THEIR ASSETS FURTHER TO?

Arguably, since all billioniares and PE funds are equally smart [what a joke :) ], so they won't be buying it from each other [Hello God's bank, Carlyle and KKR smartasses ;) ].......and IPO's are pretty much DEAD.....so who is gonna buy these buildings that PE funds bought or billion dollar companies that the billionaires acquired?

I would like to understand how do investors of PE Funds or billionaires find an exit route? According to text books, exit route is to do an IPO or sell to another idiot billionaire or a more idiotic hedge fund or a fellow smart ass PE fund manager....

But if billionaires are falling apart [Hello OGX Batista, Hello Salgado from Portugal, Hello Stanford, Hello Madoff], won't be able to expect future profitable returns, are saturated or IPO's are dead, then WHO ON GOD's GREEN EARTH is going to pay these idiots and buy their assets?

Tue, 11/17/2015 - 13:14 | 6804883 Boris Alatovkrap
Boris Alatovkrap's picture

<-- Amerika is bondage

<-- Amerika is not free

Tue, 11/17/2015 - 13:21 | 6804894 KnuckleDragger-X
KnuckleDragger-X's picture

Running out of other peoples money, that's just not fair!!!

Tue, 11/17/2015 - 13:23 | 6804899 LawsofPhysics
LawsofPhysics's picture

When I start seeing bankers and financiers heads on fucking pikes, then I will believe that the financial sector is starting to adopt real reforms.  Go ahead motherfuckers, ask for another bailout.

Tue, 11/17/2015 - 13:23 | 6804901 aliki
aliki's picture

1. HYG - the longer it stays under 90.00, the deeper & harder "investors" are gonna get fucked

2. oil - once it breaks 40.00, see after the "," of #1.

Tue, 11/17/2015 - 13:38 | 6804951 SILVERGEDDON
SILVERGEDDON's picture

Coinhead in 5...........4.........3.........2.......1.

Buh Teh Shitcoin !

Another Ponzi crypto con man happily at work fleecing the sheeple.

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