For several months, investment bankers have kept their spirits up by telling themselves that the deals will come back, they have to come back, because private equity funds and LBO sponsors still have significant funds to implement. But the latest news from Citrix’s privatization deal is not encouraging.
Citrix was one of the last big leveraged buyout deals to close before the Russian invasion of Ukraine and the end of the 2021 deal boom. It has worked its way through the pipeline ever since. This week, the Debt Capital Markets (DCM) portion of the deal hit the market and the news isn’t good – there’s about $500 million in underwriting losses out of the $4 billion in high-yield bonds that were sold, to be split between a syndicate that includes Goldman, Credit Suisse and Bank of America.
The headline figure, if any, understates how badly this deal went. The yield that was expected to be offered was significantly higher than the high end of the range that had been estimated only a few weeks ago, and the order book was barely covered. Rather than being in a position to decide which clients to allocate the limited supply of bonds to, underwriters have apparently been reduced to tapping into smaller hedge funds that don’t usually even invest in the high-end space. return, just to get the sale to happen at all. And up to $1 billion in bonds ended up with Elliott Investment Management, the original sponsors of the deal.
In other words, and frankly speaking, it was a disaster. It’s not exactly the first writedown on LBO activity – it was a feature of the second quarter accounting season – but it’s another step down, and the price set by Citrix bonds is likely to rise. affect marks on the market for the third quarter, exactly seven trading days remain.
Beyond that, it’s very hard to see anything picking up by the end of the year. Given the share of this type of blocked debt in bank balance sheets, there is an obvious risk of the development of a “fire selling” dynamic; if a big player decides to bear the pain before the end of 2022 and start the new year with capital freed up to do something different, everyone else could be pressured to do the same, leading to an unworthy stampede that will not benefits no one and write-downs that we haven’t seen in years.
The problem is that if investors don’t want to buy that debt, nothing happens. In good times, bankers are happy to recite industry clichés like the one about being in “the moving business, not the storage business.” But if you have nowhere to move your stuff, you’re in storage whether you like it or not. Before there can be a recovery in private equity deals, there needs to be a sign of investor willingness to clear the backlog and be receptive to new issuance. That could mean Citrix and similar deals could still weigh on bonuses and hiring for some time to come.
Elsewhere, one of the hottest areas of alternative investing is private credit and direct lending funds – essentially doing business similar to banks but without the overhead of a regulated firm and with investors from hedge funds rather than depositors. Private credit funds may still end up having their own problems, but with troubled leveraged finance deals, you would have thought that the investment team at Tennenbaum Capital Partners, a private credit company acquired by BlackRock in 2018 would have a great year.
Apparently not. About a third of them have left since the acquisition, with a wave of departures over the past six months (which could reflect the fact that some of the top executives were on four- or five-year retention plans). It seems compensation is part of the problem – BlackRock just doesn’t pay as well.
But it seems the bigger factor is that the folks at Tennenbaum just don’t feel respected. One particular cause for complaint is apparently that they thought they were going to be allowed to start a special situations fund, but were told to stick to direct lending and not encroach on the territory of the seat fund. existing specials by David Trucano. BlackRock doesn’t really seem to regret the deal – they’ve increased assets under management significantly – but they might be well advised to think a bit more about this kind of overlap when making deals in the future.
Credit Suisse plans to split its investment bank into three parts: the advisory business, a bad bank and the rest. He still wants to sell the securitized products business. (FinancialTimes)
Big Tech is also trying to cut costs without appearing to be mass layoffs. Teams are being reorganized and staff are being asked to apply for a limited number of alternate roles at Google and Meta. They only have a short period to do so; employees refer to being on the “30 day list”. Since tech companies don’t have such a weighting in bonuses as banks, they have much less ability to adjust staffing costs without laying people off. (WSJ)
Apparently, towards the end of Josh Harris’ time at Apollo Management, his colleagues grew increasingly frustrated with the difficulty of reaching him because of all the time he spent on the sports teams he had bought. (Business Insider)
The downside of being on Citi’s Malaga team is that demonstrating a preference for work-life balance could put you on a less glamorous “mum path” in your career. (The advantage is, of course, that you are in Malaga). (FT)
Anthony Hartley has resigned as Citigroup’s European Head of Healthcare Investment Banking. It’s unclear why or where it’s going, but Citi is definitely passionate about the industry, having hired six senior executives in April and set up a “health, wellness and consumer supergroup” – sometimes this kind of reorganization is itself. even destabilizing for the holders. (Financial News)
How does it feel to leave your startup? While there are complicated emotions for fintech founders, there is a general consensus of “pretty good, if only from a financial standpoint.” (Sieve)
A ‘ransomware simulator’ to test how good your instincts are when trading with hackers (FT)
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