Tenneco Clears Regulatory Hurdles, Banks Stuck with $5.4 Billion in LBO Debt

The Lake Forest-based auto parts maker, Tenneco, announced that it has cleared the final regulatory hurdles to be acquired by a New York-based private-equity firm, Apollo. However, the banks involved in the syndicate, led by Bank of America and Citigroup, are now on the hook for $5.4 billion in debt financing that they've struggled to sell to investors. The acquisition is expected to close this month, and with it, Tenneco plans to move its headquarters to Northville Township, Michigan.

Key Takeaways:

Tenneco, a global auto parts maker, has around 3,500 workers at several offices and plants in Michigan, in addition to 200 employees in Lake Forest.
The acquisition by Apollo is valued at $1.6 billion, and the sale is expected to close this month after obtaining approval from antitrust regulators in Europe and Japan.
The banks involved in the syndicate, led by Bank of America and Citigroup, have provided $6 billion in debt financing to Apollo as per their commitments.
The banks are now struggling to sell a portion of the $5.4 billion they initially wanted to offload to investors, with some other bank consortiums absorbing hundreds of millions in losses on similar deals in recent months.
BMO, a Toronto-based bank, has written down $64 million in debt it agreed to provide to private-equity buyers in three deals struck before Russia's invasion of Ukraine, but declined to confirm whether Tenneco is one of the three deals.
The acquisition is significant for Tenneco shareholders, but the timing is critical, as banks' appetite for LBO debt has diminished due to spiking interest rates.

Statistics:

$5.4 billion: The amount of debt financing provided by the bank syndicate to Apollo.
$6 billion: The total debt financing provided to Apollo by the banks, as per their commitments.
$64 million: The amount of debt written down by BMO due to the decline in appetite for LBO debt.
3,500: The number of workers employed by Tenneco at several offices and plants in Michigan.
200: The number of employees employed by Tenneco in Lake Forest.

Sources:

Crain'sDetroit Business
Bloomberg Law (Oct. 26)