Goldman Fund Said to Lend $750 Million for Petco Takeoverby
Agreement comes as investors flee market for junk debt
Banks said to commit $3.25 billion to finance acquisition
A fund managed by Goldman Sachs Group Inc. is filling a void left by investors fleeing the junk-bond market, agreeing to buy $750 million of bonds that will help finance the purchase of Petco Animal Supplies Inc. by CVC Capital Partners and the Canada Pension Plan Investment Board, according to a person with knowledge of the matter.
The fund is taking the debt off the hands of a group of banks that committed to finance the $4.6 billion acquisition from TPG Capital and Leonard Green & Partners. Barclays Plc and Citigroup Inc. are among six banks providing $3.25 billion of financing to fund the deal, said the person, who asked not to be identified because financing details haven’t been made public. The Goldman fund is a so-called mezzanine fund raised primarily from client capital.
Banks have struggled to find buyers for debt that backs highly leveraged deals amid market turmoil that’s saddling junk-bond investors with their first annual loss since 2008. Underwriters have sold much of the debt at steep discounts to get it off their books, or postponed offerings. Last week, banks cut the price on a loan to finance Kraton Performance Polymers Inc.’s takeover of Arizona Chemical Holdings Corp.
Willingness to take on risk while others retreat from the market gives lenders like the Goldman-run fund negotiating leverage as banks seek to offload commitments before year-end.
Representatives for Goldman Sachs, Petco, Citigroup and Barclays declined to comment.
Investors yanked $3.8 billion from U.S. high-yield bond funds in the week ended Dec. 16, the biggest withdrawal this year, according to Lipper. The withdrawals came after Third Avenue Management froze redemptions in a credit fund, triggering concerns of a bigger meltdown in debt markets.
The Petco acquisition is expected to close in early 2016, according to a Nov. 23 statement from CVC Capital. The banks will aim to sell the remaining debt for the Petco deal, including $2.5 billion of term loans, next year, according to the person. They will also seek to place a $500 million asset-based loan, the person said.