(Bloomberg) – Lenders are now paying $2.2 billion in debt for a deal linked to Canadian auto parts companies, as Wall Street is struggling for the first time since the Trump administration sparked a global trade war less than two weeks ago.
Typically, when a merger or acquisition is announced, the involved company immediately lists the bank’s debt as debt and then sells it to investors in the leveraged loan and high-yield bond markets. ABC Technologies Holdings Inc. closed its purchase of Ti Fluid Systems PLC on Tuesday before banks could sell bonds and loans, according to people familiar with the matter.
In Wall Street’s discourse, this means that debt is now “hanged”.
A group of banks, including Citigroup Inc. and JPMorgan Chase & Co., will have to use their balance sheets to fund Apollo Global Management Inc. to support the ABC acquisition.
Representatives for Citigroup, JPMorgan Chase, Apollo and TI Fluids declined to comment.
Banks that bear a large amount of debt on the balance sheet may be limited in their ability to underwrite other risk transactions under capital reserve requirements. The gears of the leveraged machine were painted off a few years ago, and Wall Street Bank was sealed with bonds and loans on its books about $40 billion, a value that diminished as investors evade the value of the deal.
While this year’s pipeline is much worse than in 2022, banks were pasted in dangerous junk financing last time, a deal was reached before U.S. President Donald Trump announced the approval of tariffs on April 2. The ensuing wave of volatility effectively shut down fewer bonds and fewer company sales of new bonds and loans for the company, selling fewer credit lines.
Wall Street Bank attempts to raise about $1.3 billion in high-yield bonds and provides ABC with $900 million in leveraged loans.
This is the second acquisition this year without the debt being sold. In February, the bank was trapped in a $750 million debt package for Lakeview Farms to acquire Noosa Yoghurt.
After a lender call on March 25, banks issued leveraged loans at a rate of 5.5 percentage points higher than the interest rate that secured overnight financing, while investors enjoyed a 95-96 cent discount at the dollar.
Investors slammed the product over concerns about how tariffs will affect Toronto-based ABC and England-based TI fluid systems. While this doesn’t mean banks will be in debt forever, Trump quickly changed tariff policies and retaliation measures from affected countries, which means it will take time to resolve.
Banks can sell debt to private credit companies, modify the terms of debt transactions to appease risky investors or wait until volatility subsides, bond and loan buyers are open to new deals.
(The entire update, including comments from TI fluids.)
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