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JPMorgan, Bank of America Dangle 14% Yield to Get Rid of Risky M&A Debt

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(Bloomberg) — Wall Street bankers are dangling one of the steepest discounts in recent memory to bond investors as they look to offload billions of dollars of debt that’s been stuck on their books for months.

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Lenders led by JPMorgan Chase & Co. and Bank of America Corp. are working to sell $1.35 billion of junk bonds and leveraged loans supporting Viasat Inc.’s acquisition of Inmarsat Group Holdings Ltd. after being forced to fund the deal when the acquisition closed at the end of May. The $733 million of unsecured bonds are being marketed at a price of about 70 cents on the dollar, bringing the all-in yield to roughly 14%.

Banks have been chipping away at the roughly $40 billion of debt they were left stuck with at the end of last year as markets seized up. After months of selling the so-called hung debt in one-off transactions as credit conditions improved, bankers are finally down to the hairiest offerings and see now as the best time to try and push through deals — even if it means eating into fees or at worst, taking losses.

Viasat’s outstanding unsecured bonds due 2028 are trading at roughly 75 cents on the dollar. A new offering with a longer maturity will have to compensate investors, according to John McClain, portfolio manager at Brandywine Global Investment Management. “You’re going to have to entice people with a pretty massive original issue discount,” McClain said.

A representative for JPMorgan, which is managing the bond offering, didn’t respond to a request for comment. Bank of America, which is leading the loan sale, declined to comment.

Also being sold to fund the acquisition is a $616.7 million leveraged loan maturing in 2030. It may pay 4.5 percentage points over the Secured Overnight Financing Rate and price at a discount of 95 cents to 96 cents on the dollar, according to people with knowledge of the offering.

Improving demand for risky debt in recent weeks could help Viasat’s bankers get the deals across the finish line.

Burger King owner Restaurant Brands International Inc. this week sold the largest leveraged loan since early last year to refinance its loan due 2026, tightening the pricing, scrapping a planned bond offering and upsizing the loan twice.

Banks are also in the process of selling $3.7 billion in M&A debt to fund a private equity consortium’s buyout of Syneos Health Inc. and $4.4 billion in loans to fund GTCR’s purchase of a majority stake in payment processor Worldpay Inc. Additional junk bonds are expected for that transaction, too.

Still, it’s not hard to imagine why some buysiders may be cautious. Bankers offloaded $3.1 billion of leveraged loans and junk bonds to support Apollo Global Management Inc.’s buyout of auto parts manufacturer Tenneco Inc. in August, only to see the bonds, which priced at 85 cents on the dollar, slump in secondary trading. The notes last traded hands at around 81 cents on the dollar on Wednesday, according to Trace.

The unsecured ranking of Viasat’s bonds along with the company’s own idiosyncratic issues are likely driving the huge discount. In July, shares of the digital satellite communications provider tanked after a deployment issue with one of its satellites, and haven’t come close to recovering. The shares traded above $40 in July, but are now sitting at around $23.

–With assistance from Jeannine Amodeo and Gowri Gurumurthy.

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