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Wall Street investment banks that financed last year’s leveraged buyout of tech company Citrix have lost roughly $1.5bn after selling off remnants of a deal struck as the era of cheap money was coming to an end, according to people familiar with the matter.
Goldman Sachs, Bank of America, Credit Suisse and 30 other lenders on Tuesday sold $3.84bn of junior bonds backing Elliott Management and Vista Equity Partners’ $16.5bn buyout of Citrix.
The bonds are among the final pieces of a multibillion-dollar financing package that the banks had kept on their own balance sheets after a sell-off in financial markets wreaked havoc on Wall Street’s dealmaking machine.
The banks sold the junior bonds at a steep 21 per cent discount, or about 79 cents on the dollar, according to people with knowledge of the matter. The notes, which will mature in September 2029, will yield about 14 per cent. The sale generated a loss of about $675mn for the banks.
The Citrix deal was struck in January 2022, right before the US Federal Reserve began to aggressively raise interest rates in a bid to curb inflation. The Fed action sent bond prices spiralling lower, inflicting painful losses on banks that had agreed to lend at lower rates.
Banks have been unable to sell debt from several marquee leveraged buyouts, including Elon Musk’s $44bn takeover of Twitter and Apollo’s $7.1bn purchase of auto parts maker Tenneco. In Citrix’s case, the banks were forced last year to put up their own cash to fund the takeover.
The turmoil in financing markets and fears of a looming recession have made it hard for private equity groups to find affordable buyout financing from banks. Instead, they are increasingly turning to private credit providers, who have been able to write larger loans as pension plans, endowments and sovereign wealth funds have piled into their funds.
Some of those fund managers, including Carlyle and HPS Investment Partners, purchased the new Citrix debt sold this week, enticed by the high returns on offer, people briefed on the matter said. Elliott also bought some of the bonds, adding to an investment it made last year when it spent $1bn on more senior Citrix debt.
Goldman Sachs, Bank of America, Credit Suisse, Elliott and Vista declined to comment.
Goldman and counterparts across Wall Street had been canvassing investors for months to find buyers for the debt tied to the Citrix acquisition.
The bond sale on Tuesday pays off most of the Citrix debt that remained on bank balance sheets after an $8.55bn bond and loan sale last September and a handful of block trades of Citrix term loans worth about $2bn in December and January.
The banks lost more than $600mn on the September sale and crystallised additional paper losses on the block trades.
Marketing documents for the junior bonds sold this week seen by the Financial Times said Citrix has laid off about 15 per cent of its combined staff in a cost-cutting drive that it hopes will save it $485mn a year. S&P has rated the bonds single-B minus, among the riskiest ratings it assigns.
Steven McDonald, an analyst at S&P Global, said the progress Citrix had made “tempers the risk of integration mis-steps and cost-saving delays and bolsters our confidence that its improving profitability and cash flow generation will support a gradual reduction in its leverage”.
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