Investors have reportedly balked at buying $12 billion (€8.7 billion) in loans pertaining to the sale of Chrysler to Cerberus Capital Management, making it the second major buyout to have its debt syndication delayed today.
A JPMorgan-led group of banks has tried unsuccessfully since June to sell the loans and has now opted to absorb $10 billion-worth and try to sell them at a later date, while Cerberus and Daimler will shoulder the remaining $2 billion, the Associated Press reported.
The £5 billion financing package for KKR’s Alliance Boots buyout was also scrapped today, with JPMorgan, Deutche Bank and Unicredit postponing the sale of senior debt and sweetening terms for junior debt.
Spokespeople have said that neither buyout agreement is in jeopardy, but the Boots and Chrysler deals are likely to set the bar in terms of palatable debt levels and terms for future deals, said Bill Gross, chief investment officer of bond fund giant Pacific Investment Management Co.
“Several hundred billion dollars of bank loans and high yield debt wait in the wings to take out the private equity and leveraged buyout deals that have helped propel stocks to Dow 14,000,” he wrote earlier this week on PIMCO’s website.
In a six-week time span, the high yield debt market has completely changed directions, Gross said.
“The tide appears to be going out for levered equity financiers and in for the passive owl money managers of the debt market. And because it has been a Nova Scotia tide, rising in increments of ten in a matter of hours, it promises to have severe ramifications for those caught in its wake,” he said. “No longer will double-digit LBO returns be supported by cheap financing and shameless covenants. No longer therefore will stocks be supported so effortlessly by the double-barreled impact of LBOs and company buybacks.”