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Wall Street banks have thrown in the towel on a marquee refinancing meant to pay down one of the largest private credit deals, in a sign of the turbulence in loan markets since Donald Trump took office.
Private equity firm Vista Equity Partners has decided to shelve plans to refinance or pay off nearly $6bn of debt and preferred equity of portfolio company Finastra, according to people with knowledge of the matter.
The success of the refinancing, an effort led by Morgan Stanley and JPMorgan Chase, would have helped Vista pay down $4.8bn of high cost debt it secured less than two years ago through the $1.6tn private credit market.
It also would have given Vista, one of the best-known leveraged buyout firms in the technology industry, an ability to recoup $1bn of the money that it was forced to pump into Finastra in 2023 to obtain the private credit loan from some of the industry’s biggest lenders, including Oak Hill, Blue Owl and HPS Investment Partners.
The $1bn of preferred equity it invested became a flash point, as the Federal Reserve’s aggressive rate rises sent shockwaves through high-yield bond and leveraged loan markets. Vista had to borrow against the value of one of its funds to secure the $1bn it needed, a novel financial engineering tactic to raise capital at the time.
The buyout firm had hoped to take advantage of buoyant financial markets earlier this year, planning to raise a $5.1bn senior term loan alongside a $1bn riskier junior loan.
Bankers initially pitched the senior loan with an interest rate just 3.75 percentage points above the floating rate benchmark, to yield more than 8 per cent. They were offering extra discounts on the $1bn junior loan, alongside a juicer interest rate that would pay between 6 and 7.5 percentage points above the floating rate benchmark, one person briefed on the matter added.
But as market volatility spiked, would-be buyers shied away. Bankers attempted to juice demand by increasing the interest the debt carried. They widened the so-called spread on the senior loan to about 4.5 percentage points as marketing efforts got more fully under way, but investors still sought better terms.
While that is far below the 7.25 per cent premium currently on Finastra’s $4.8bn private credit loan, other financing costs deterred Vista from going forward with the sale.
One person cautioned that the deal could still be resuscitated, but that it did not make sense to “launch in the current market”.
Vista, Morgan Stanley and JPMorgan declined to comment. Finastra did not immediately respond to a request for comment. Bloomberg earlier reported some of the details of the debt sale.
The inability to secure acceptable refinancing terms for Finastra speaks to weaker demand in recent weeks in the loan market, which has been swept up in the sell-off hampering stocks and other riskier financial assets.
“The appetite in the market is lower,” one investor whose firm looked at the Finastra loan said. “It is definitely softer across the board.”
March registered the largest monthly decline in the average price investors were bidding on US leveraged loans since October 2023, according to a closely followed Morningstar index.
The weakness in the loan market tracks with decreased appetite for debt from investors. The cost of borrowing has steadily increased for companies as fears of a US economic slowdown and higher inflation intensify, which was occurring even before the fallout from Donald Trump’s battery of tariffs announced Wednesday on dozens of America’s trading partners.
The softness may shift the balance of power between private credit funds and leveraged loan investors, given the private funds tend to remain active buyers during market dislocations.
“We’re going to see a pendulum swing back towards the private credit market,” after being in favour of syndicated markets for the past half year, one banker who followed the Finastra deal said.
