Looks like the large debt deals are slowing down due to risk….
Banks retreat from the lucrative but risky business of backing debt-heavy buyouts
Banks are increasingly turning down companies seeking financing to pay for debt-laden takeovers after the recent market rout left them saddled with debt from earlier deals.
Credit Suisse Group AG, Jefferies Group LLC and Wells Fargo & Co. are among the firms turning down new requests for financing—typically from low-rated companies—as they retreat from the lucrative but risky business of backing debt-heavy buyouts, people familiar with the matter say.
Banks guarantee the funding in these deals, hoping to then offload all or most of it to bond and loan investors. They promise to provide the money themselves if they can’t find others to buy the debt. But as markets swooned in the months since the summer, investors have lost their appetite for the riskiest securities, making them harder to sell.
Some banks have unloaded the debt at discount prices, taking losses, while others are holding the loans in hopes of getting better prices later, which ties up bank capital and can hurt profitability. Banks were left with at least $1 billion in debt on their books over the past 12 months, according to banks and analysis by The Wall Street Journal.
With banks less willing to underwrite the most leveraged loans, the flow of new takeovers has slowed. U.S. mergers and acquisitions announced this year have fallen 21% from a year earlier to $229 billion, according to data from Dealogic. The pullback has made it hard for private-equity firms, which use a lot of debt in their takeovers, to get deals done. Those that are getting done, many are built to minimize junk debt, or debt rated below investment grade.New junk-bond sales are down 70% this year.
Banks including Wells Fargo and Jefferies have also started cutting the number of finance bankers in response.
By MATT WIRZ, LIZ HOFFMAN and EMILY GLAZER – Wall Street Journal