Wall Street Banks Hold $6 Billion in Debt, Ready to Re-attract Investors

As credit markets regain stability and merger activities pick up, Wall Street bankers are preparing to offer nearly $6 billion in buyout-related debt to investors, which was not sold during the turbulent trading in April.

Over twenty banks found themselves holding onto acquisition financing that lingered on their balance sheets after failing to find buyers before finalizing the deals—commonly referred to as “hung” debt in industry parlance. Recent junk bond issuances will serve as a vital indicator of investor demand.

A $4.3 billion junk debt issuance initiated last week to support Apollo Global Management Inc.’s acquisition of various gaming and gambling assets will be among the transactions closely examined in the current market. At the same time, banks are underwriting new deals, including a $6.5 billion financing agreement for private equity firm 3G Capital’s acquisition of Skechers.

According to sources with knowledge of the situation, some lenders burdened with acquisition-related debt may enter the market soon, possibly right after Memorial Day. The recently launched deals are crucial indicators for those awaiting resolution on bank balance sheets.

The current portfolio of hung debt includes $2.35 billion related to Patient Square Capital’s buyout of Patterson Cos., as well as a $1.1 billion leveraged loan supporting HIG Capital’s acquisition of Toronto-based Converge Technology Solutions Corp.

Moreover, there is $2.23 billion linked to Canadian auto parts manufacturer ABC Technologies Holdings Inc.’s acquisition of British counterpart TI Fluid Systems Plc, which may encounter challenges due to potential tariff impacts.

Representatives from the leading banks involved in these hung deals—Citigroup, UBS Group AG, JPMorgan Chase & Co, and Bank of Montreal—either declined to comment or did not respond to inquiries. Among the companies involved, only a representative from Converge confirmed that the acquisition has been finalized.

Deals Slowdown

The reintroduction of portions of hung debt brings little relief to bankers and investors who have been anticipating an increase in M&A activity for years. This situation also poses a risk for banks as they might eventually have to sell bonds and loans at discounted rates, provided buyers can be found.

President Donald Trump’s tariff announcements on April 2 effectively halted activities for non-investment-grade companies, leading to a near two-week freeze on deals. This converted a prolonged slowdown in M&A into a mixed blessing for lenders, as a lighter underwriting pipeline restricted the debt they had to offload or otherwise finance from their balance sheets.

“This period of volatility is without precedence,” stated Chris Bonner, head of US leveraged finance at Goldman Sachs Group Inc. “Typically, we navigate volatility with consistent patterns; banks hold long positions on risk that needs to enter the market quickly while investors are short on available cash.”

With M&A activities curtailed, “banks’ risk profiles are roughly half of their usual levels,” Bonner noted.

In 2022, amidst rapid interest rate hikes affecting credit markets, banks faced over $40 billion in hung debt.

Open for Business

Despite the ongoing potential for more hung deals, banks continue to underwrite new transactions as Trump has rolled back some of his tariff measures.

Recent activities include the financing of the Skechers acquisition, along with several other deals announced in April that involve bank-led debt.

“We’re fully open for business,” remarked John Skrobe, Barclays Plc’s US head of leveraged finance. “In 2022, the momentum just came to a standstill.”

However, this doesn’t mean that investors are eager to finance debt transactions at previous pricing levels. Still, for the right deals, they are willing to re-enter negotiations.

A significant junk deal priced during April’s volatility—a $4 billion issuance for QXO Inc.’s acquisition of Beacon Roofing Supply Inc.—saw such strong demand that investors agreed to boost their commitment by an additional $500 million. In addition, Arcis Golf LLC was able to raise $200 million within just a few days.

“Clearly, there is both demand and a necessity for this,” noted Scott Caraher, head of senior loans at TIAA-owned investment management firm Nuveen. “We are eager to explore new opportunities.”

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