The race to sell $15bn in LBO debt

Two scoops to start: First, prime minister Liz Truss and chancellor Kwasi Kwarteng are preparing to launch a last-ditch charm offensive to persuade Japan’s SoftBank to list British tech company Arm in the UK.

Next up, US private equity group Silver Lake has increased its stake in the parent company of Manchester City Football Club, making it the second-largest shareholder in the business behind its Abu Dhabi owners.

In today’s newsletter:

The deal Wall Street must sell

Last Thursday at 11am in New York, Steven White of Vista Equity and Isaac Kim of Elliott Management dialled into a conference call that in many ways would set the tone for dealmaking through the end of the year.

With the help of lead bankers at Bank of America, they were working to sell “ComboCo,” or the $15bn financing package to take Nasdaq-listed enterprise technology provider Citrix private and merge it with Vista-owned software company Tibco, to a sceptical Wall Street.

The $16.5bn takeover, struck in late January, is the most prominent of about $70bn in financings stuck at large banks such as BofA, Credit Suisse and Goldman Sachs that need to be sold before they can finance new buyouts.

A critical detail emerged in the call’s final moments. Though lenders are being asked to stump $15bn to finance the takeover, that cash isn’t quite enough.

Vista and Elliott revealed they would need to borrow more to fund $200mn in cost-cutting plans, DD’s Eric Platt and Antoine Gara report.

They’ll tap a $1bn revolving credit facility to finance the synergies, which will include lay-offs in its sales and marketing departments.

The move underscored how tight cash will be once Citrix is taken private. Revolvers are rarely tapped so quickly — and are normally reserved for short-term liquidity needs.

“They don’t have cash on hand and cash in the business to pay for severance and other wind-down cash expenses,” said one investor on the call.

Banks have until September 19 to offload the debt. So far, investors have been reluctant to pile in, though bankers still expect the transaction to be completed.

One creditor called the leveraged buyout a “bull-market deal” that made little sense now as interest rates surge.

A sharp market sell-off on Tuesday after inflation data came in higher than expected added to headaches. One big lender said that the deal had been going somewhat well up until that morning.

“In August I heard lots of big asset managers [were] putting in big tickets and they were excited to get a big coupon,” the lender said. “After CPI, that kind of fell apart. Citrix is . . . a canary for investor demand.”

Banks have offered discounts to win over investors.

The $4bn secured bond, which was initially expected to yield between 8.5 per cent and 9 per cent, could now be priced with a yield as high as 9.5 per cent, said one person.

Commitments for a $4.55bn term loan have surpassed $4bn, but remain below the demand of two times a deal’s size that bankers try to drum up.

“Maybe a lot of starved, yield-hungry people will believe in the story and there will be enough of a discount . . . that [underwriters] build a strong book,” one lender said. “But there’s a lot of hair.”

A Chinese billionaire’s debt-fuelled deal spree

DD readers may recall in early July when we examined the misadventures of Chinese billionaire Guo Guangchang.

His expansive Fosun group counts England’s Wolverhampton Wanderers football club, Portugal’s biggest bank Millennium BCP and the French resort group Club Med among its assets.

The big story at the time was that the dealmaker’s $38bn debt pile was growing out of hand, with interest and operating expenses outweighing income.

Chinese groups were having an increasingly difficult time refinancing — especially those with big property portfolios, such as Fosun — after a series of defaults by Evergrande turned bond investors off of the Chinese market.

For its part, Fosun insisted that its financial position was “sound and healthy” and emphasised its strong relationships with lenders.

But things haven’t improved since then.

Fosun entities earlier this month disclosed plans to cut holdings in cornerstone listed healthcare unit Shanghai Fosun Pharmaceutical by 3 per cent, which surprised investors because the company had pledged to focus on cutting its positions in non-core groups.

Fosun defended the move as “balancing investment and divestment” but investors appear to disagree. Its Hong Kong-listed shares have lost nearly a fifth of their value and are trading near their lowest point in almost a decade.

Sentiment soured further after Bloomberg reported this week that Chinese securities regulators have asked some large lenders and state-owned companies to examine their business exposure to Fosun.

Guo, who landed back in China after a world tour, took to social media platform Weibo to defend himself. He denied that banking regulators had made the instruction, lambasted Bloomberg, and promised to file a lawsuit against the US media group.

A famous survivor through tumultuous periods of Chinese politics and market upheaval, Guo appears furious and primed for a fight.

Fosun, like many of its peers in China, appears to still be grappling with how to respond to perennial questions over not just its vast debts, but also its complicated structure and opacity.

Until they can produce answers, scrutiny from investors, rating agencies and regulators will probably intensify.

Keeping up with Lars Windhorst

For most people, having a judge exclaim that they were “living on borrowed time” would be a harrowing experience, particularly if it was during an English High Court case with tens of millions of pounds on the line.

But for German financier Lars Windhorst, it was just a day in the life.

Windhorst, who first shot to fame as a teenage business prodigy before enduring a bruising downfall that culminated in a criminal conviction, is no stranger to courtrooms. But he wasn’t actually present for the stern rebuke from an English judge in June, who warned the financier’s barrister that he risked being held in contempt of court for failing to attend the hearing.

The case concerned a €65mn claim from a Norwegian shipping magnate alleging that Windhorst had borrowed money and then stiffed him. The mercurial financier is trying to fend off several similar lawsuits in London’s High Court.

And the money at stake in these claims pales in comparison to the over €1bn Windhorst owes to H2O Asset Management, the former star of European investment that was plunged into crisis when the Financial Times exposed its outsized bet on the financier in 2019.

The erstwhile “wunderkind” last month pledged that he will hand over half a billion euros to H2O in a matter of “weeks”. With the clock running down, the FT’s Cynthia O’Murchu and DD’s Rob Smith took a closer look at the scale of the challenge facing Windhorst.

One thing’s for sure: while the financier has been accused of many things over the years, being dull isn’t one of them.

Job moves

• Shell chief executive Ben van Beurden is to step down after almost a decade in the job. Wael Sawan, head of gas and renewables, has been named his successor. More from Lex.

• Dick Benschop, the chief executive of Amsterdam’s Schiphol airport, has resigned over the flight chaos that is still gripping the Dutch hub.

• Martina Ecker, previously a managing director at M&A advisory goetzpartners, and former Goldman banker Kristina Ribas have joined Citigroup’s clean energy transition group in Frankfurt and London, respectively.

• LVMH-backed private equity group L Catterton has hired Ian Friedman as a partner and managing director in its growth fund. He was previously co-head of Goldman Sachs’ growth equity team.

• Jones Day has hired Ryan Girnun and Eric Lundt as partners in its real estate and business and tort litigation practices in the firm’s Miami office. They join from DLA Piper and Gray Robinson, respectively.

Smart reads

The great uncoupling Xi Jinping is keen to lessen China’s economic dependence on the west. The president’s plan for a “fortress China” poses serious challenges to multinational companies that depend on the country for growth, the FT reports.

A lose-lose situation Mild-mannered Twitter chair Bret Taylor has mostly kept out of the limelight throughout the social media group’s legal battle with Elon Musk. However, his composure will be tested by the contested takeover, Bloomberg writes, with his board position in jeopardy either way.

Trickle-down economics Kwasi Kwarteng’s plan to scrap the bankers’ bonus cap in Britain has been received with glee in London and on Wall Street. But the move by the UK chancellor is politically risky as he seeks to convince the public that it will boost the economy overall, the FT reports.

News round-up

Axel Springer boss was landlord to Adidas during campaign against sports brand (FT)

Adobe to buy design company Figma for $20bn (FT + Lex + Alphaville)

Auditor resigns from Sanjeev Gupta’s UK steel businesses (FT)

Ethereum ‘Merge’ concludes in key moment for crypto market (FT)

AIG’s Corebridge unit slips after stock market debut (FT)

Apple, Amazon passed on LIV Golf media rights (Wall Street Journal)

THG cuts guidance as rising costs hit shoppers (FT)