Struggling to Refinance: Investment Banks Face Setbacks on SunGard Deal

Strategic Insights -

Investment banks involved in financing the $11.3 billion purchase of US data storage group SunGard are struggling to find buyers for the debt, raising concerns about the impact of a downturn in high-yield markets on large private equity deals. The banks, including Deutsche Bank, JPMorgan, and Citigroup, are attempting to syndicate a $4 billion bank loan and a $3 billion bridge loan to hedge funds and other preferred investors, but early indications of interest have been lukewarm. If the banks fail to refinance the loans, which were bought in March, they would be left with a significant exposure.

Key Takeaways:

  • The $11.3 billion purchase of SunGard is the largest leveraged buy-out since Kohlberg Kravis Roberts bought RJR Nabisco in 1989.
  • Investment banks are struggling to find buyers for the debt, with early indications of interest in the bank loan and bridge loan being lukewarm.
  • The difficulty in selling the debt has raised doubts about similar deals, such as the $6.6 billion purchase of Toys R Us by Bain Capital, KKR, and Vornado Realty.
  • Private equity deals have already suffered from the waning appetite for risk, with Deutsche Bank recently pulling the sale of $825 million of high-yield paper to fund KKR's $2.6 billion takeover of Masonite International.
  • SunGard's stable cash flow is cited as a reason for confidence that the loans will be sold, but the high-yield market is seen as having only temporarily softened.
  • The banks involved in the deal, including Silver Lake, Deutsche Bank, JPMorgan, and Citigroup, declined to comment.

Statistics:

  • $11.3 billion: The purchase price of SunGard by the consortium of private equity groups.
  • $4 billion: The amount of the bank loan being syndicated to hedge funds and other preferred investors.
  • $3 billion: The amount of the bridge loan being marketed to investors.
  • $6.6 billion: The purchase price of Toys R Us by Bain Capital, KKR, and Vornado Realty.
  • $2.6 billion: The price of KKR's takeover of Masonite International.
  • $825 million: The amount of high-yield paper Deutsche Bank recently attempted to sell to fund the takeover.

Sources:

  • Business correspondence
  • "Lex, Page 22" (no date)