PETC Petco Animal Supplies

   (FROM THE WALL STREET JOURNAL 1/9/16) 
   By Matt Wirz and Justin Baer 

Many investors are taking a break from the junk-bond market, but not Goldman Sachs Group Inc.

An $8 billion fund the firm raised last year in anticipation of market turmoil has snapped up at least two large junk-debt deals in recent weeks, said people familiar with the matter.

The "mezzanine debt" fund bought $750 million of bonds backing private-equity firm CVC Partners's $4.6 billion leveraged buyout of retailer Petco Holdings Inc., and $600 million of debt for Silver Lake and Thoma Bravo's $4.6 billion purchase of software company SolarWinds Inc., they said.

The fund is one of a number of nontraditional lenders stepping up to lend to companies with credit ratings below investment grade as banks and other investors, like mutual funds, step back. Firms like Ares Management, Golub Capital and Oaktree Capital Group are increasingly buying loans and bonds directly from companies. They offer the advantage of one-stop shopping for companies needing to raise money when public sales of junk bonds and loans have slowed to a trickle. In exchange, they are pulling in fees and high yields.

CVC agreed to pay Goldman an underwriting fee on top of the 9% interest rate Petco will pay on the bonds to ensure the deal would get done, people familiar with the matter said.

Wall Street banks made billions of dollars of loans backing a wave of mergers and acquisitions in 2015. The plan was to resell much of the debt to bond- and loan-fund managers. But investor appetite for junk bonds dried up in the fall, forcing banks to sell the loans at a loss or keep them on their books, incurring high capital charges required by new regulations.

In November, Bank of America Corp. canceled a roughly $5 billion debt sale for the buyout of data-storage business Veritas, citing weak investor demand, people familiar with the matter have said.

Now, banks are far less willing to finance acquisitions, and buyout firms are increasingly calling on investors such as Goldman, which are willing to lend even in choppy markets if the price is right.

Goldman raised the new mezzanine fund, its sixth, early last year.

The mezzanine funds are run by Tom Connolly, a partner in Goldman's merchant bank, and has targeted investments that help finance buyouts ranging from $200 million to more than $800 million. The fund also bought debt backing Thomas H. Lee Partners's buyout of retailer 1-800 Contacts Inc. last month, the people familiar with the matter said.

Most of the firms providing such loans specialize in debt of junk-rated companies and look to pounce on riskier deals in times when the markets turn jittery and more traditional investors back off. But it is unusual for the firms to take on such large financing, which traditionally have been the province of investment banks with large balance sheets.

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Dana Cimilluca contributed to this article.

(END) Dow Jones Newswires

January 09, 2016 02:47 ET (07:47 GMT)

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