Hedge fund GLG Partners is raising a $250 million fund to invest in leveraged buyout debt, according to a source close to the company.
This is reportedly one of many private equity firms, banks and hedge funds which are pooling large funds to buy tranches of debt from investment banks, according to two sources in the debt markets
The banks are facing a large increase in risk on their balance sheets as they are unable to syndicate hundreds of billions of dollars of leveraged loans in support of buyouts, since liquidity disappeared from the debt markets.
A source in the debt markets said: “A group of investors are raising mega funds to take debt off banks balance sheets at incredibly low prices. Rumours are the prices they are looking to offer at year end are at anywhere from 90–93 percent of face value.”
The source’s company has been approached to join one of these mega funds. “This is predominantly aimed at the US rather than Europe because that’s where the majority of the backlog is,” he said.
The banks underwriting the First Data deal have been approached with an offer at 93 percent of face value to take $12 billion of the debt off their balance sheets, the two sources said.
Lehman Brothers is reportedly raising a $2 billion fund, according to UK newspaper Financial Times. Oaktree of California is looking to raise a $5 billion fund.
“In Europe most of the underwriting risk is with better capitalised banks such as RBS or Barclays Capital. Yet in the US, banks with constrained balance sheets which are fee driven businesses, such as Goldman Sachs or Morgan Stanley, may well be forced by their boards to offload the debt to be able to write new business,” said a senior person at a CLO provider.
The current leveraged loan pipeline is $375 billion, according to data provider Dealogic.