Recent financial data reveals escalating anxiety in the private equity sector due to the Citrix debt ceiling crisis, which is unrelated to Congress but significantly impacts the market.
Banks experienced a loss of approximately $600 million to $700 million last week when forced to discount junk bonds connected to the $16.5 billion acquisition of Citrix by Elliott Management and Vista Equity Partners.
Further analysis indicates that the unsold debt exceeded $6 billion, even after Elliott’s intervention with a $1 billion bond purchase to address the demand gap. Prospective buyers are increasingly concerned that rising interest rates will adversely affect Citrix’s cash flow, creating uncertainty in the market.
A comprehensive assessment of the current market landscape uncovers that corporate acquirers are already facing challenges in securing Wall Street underwriting for leveraged buyouts, particularly large-scale deals beyond the reach of most private credit funds. With the situation deteriorating, this trend is likely to continue.
Citrix, as the largest corporate junk bond issue this year, stands out in terms of size. However, banks possess several other outstanding LBO loans, including Lumen Technologies (ILEC assets), Nielsen, Tegna, Tenneco, and potentially Twitter. While some of these debt packages may prove easier to sell than Citrix’s, market analysis reveals that no guarantees exist, and banks are growing increasingly wary of taking on additional risks.
To summarize, data-driven insights confirm that private equity is sitting on record levels of uninvested capital, while stock market declines reveal new acquisition targets. Nevertheless, a surge in leveraged buyouts appears unlikely unless Wall Street offers its support, leaving the market in a precarious state.