DEUTSCHE Bank AG, JPMorgan Chase & Co and six more lenders are reviving the sale of 8 billion pounds (US$16 billion) in loans used to finance the buyout of UK pharmacy Alliance Boots Ltd, said analysts at UniCredit SpA.
The banks are taking advantage of a 6-percent increase in the price of LBO loans this month to offer debt they have been stuck with since the subprime mortgage crisis forced them to abandon marketing the deal in July, according to UniCredit's head of debt strategy Jochen Felsenheimer.
"This recovery in leveraged loans is seen as a window for the banks to get rid of these loans," Munich-based Felsenheimer told Bloomberg News. "All the banks have the same incentive to do it so they will find an agreement on price."
Banks trapped with debt after underwriting LBOs have cut their holdings of the loans by a half to US$95 billion by offering discounts as high as 37 cents on the dollar and providing financing for the buyers, according to Standard & Poor's.
Bankers abandoned selling the loan for Boots, Europe's biggest LBO, along with Chrysler LLC on July 25, setting in chain a backlog of unsold debt that Bank of America Corp says peaked at more than US$237 billion.
Lending group
Kohlberg Kravis Roberts & Co in New York borrowed most of the 11.1 billion pound cost to buy. The lending group also included London-based Barclays Plc, New York-based Citigroup Inc, Bank of America Corp in Charlotte, North Carolina, Merrill Lynch & Co of New York, Edinburgh-based Royal Bank of Scotland Group Plc and UniCredit in Milan.
Buyout firms typically borrow about two-thirds of the financing needed for acquisitions. Underwriters earn fees for the risk of holding any of the debt they cannot sell to investors. The loans are known as leveraged, or high-risk high-yield, and are rated below Baa3 by Moody's Investors Service and BBB- by S&P.
Prices for leveraged loans began recovering after the Federal Reserve backed the takeover of New York-based broker Bear Stearns Cos. by JPMorgan last month.
The most actively-traded US loans rose to a three-month high of 92.13 cents on the dollar on Tuesday from 87.1 cents on April 1, according to S&P.