Pimco has bought more than €1bn of loans from banks that underwrote Apollo’s takeover of a French payments business, in the latest example of the fund manager taking on a backlog of buyout loans at a deep discount.
A group of banks led by Barclays and Bank of America last week sold more than €1bn of debt backing private equity firm Apollo’s takeover of Worldline’s payments terminals business, according to people familiar with the matter, taking on losses from the deal in the process. Pimcothe specialist debt fund manager with over $1.8tn in assets, was the sole buyer of the loans, the people added.
Investment banks globally face losses on tens of billions of dollars of bridge loans backing leveraged buyouts on both sides of the Atlantic, which were signed before slumping markets made it harder to shift the debt to specialist funds.
In leveraged buyouts, banks initially underwrite the debt and then sell it to funds and other investors. This means the underwriters can end up sustaining losses if investors demand a lower price than initially expected. If there is a severe lack of investor appetite, a deal can become “hung”, a situation in which the banks have to hold on to the risky debt on their own balance sheets.
While banks traditionally sell buyout loans to scores of different funds in a public process, many have recently opted to shift their stuck deals quietly to either one or a handful of large investors.
In May, Pimco bought more than €500mn of debt backing the buyout of British supermarket Morrisons, which a group of banks led by Goldman Sachs sold at 85 cents on the euro. The value of these bonds has slid further since, however, with traders now quoting the debt at just 79 cents.
As well as large US debt fund managers, underwriters have recently sold some chunks of buyout debt to Asian banks, according to bankers and investors.
Pimco, Bank of America, Barclays and Apollo declined to comment.
Losses on leveraged buyout loans have recently started to flow through to investment banks’ results.
Bank of America on Monday said it had booked $320mn of markdowns on its leveraged finance loans in the second quarter of 2022, which its finance chief attributed to “pretty extreme” movements in markets.
JPMorgan last week revealed it had been hit with $257mn in writedowns on its bridge loans in the same period, although chief executive Jamie Dimon claimed the damage was smaller than for some of the bank’s peers.
“A lot of people can lose a lot of money there, and we lost a little,” he said.
JPMorgan recently took a hit while shifting £1bn of debt backing online UK gambling company 888’s takeover of rival William Hill’s operations outside the US.
Dimon estimated that the outstanding amount of bridge loans across Wall Street banks stood at about $100bn, which he said was far lower than the almost $500bn outstanding in 2007 as credit market stress ballooned into a global financial crisis.
Additional reporting by Imani Moise in New York