(Bloomberg) — The $55 billion take-private of Electronic Arts Inc. has evoked several superlatives, including being heralded as the biggest leveraged buyout of all time. Part of that list is JPMorgan Chase & Co.’s $20 billion of financing — the largest debt commitment ever by a single bank for such a deal.
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It marks the biggest win yet for Wall Street lenders that have sought to fend off the $1.7 trillion private credit industry from financing such transactions, which carry some of the juiciest fees in the debt-underwriting business.
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JPMorgan made the commitment through its leveraged-finance arm, not its private credit strategy, and the biggest US bank is expected to share the risk with rival firms to create a global syndicate of underwriters, according to people familiar with the deal. The debt — expected to be rated in the single-B range — is set to be sold through high-yield bonds and leveraged loans in a cross-border, dual-currency transaction, said the people, who asked not to be identified discussing confidential details.
The final structure of the sale will depend on market conditions at the time of the launch, the people said.
Normally, the buying and selling of companies by private equity firms drives a significant amount of activity in the leveraged-finance debt markets. But these deals have remained muted ever since the Federal Reserve began hiking rates in early 2022.
That left investors clamoring for new deals — particularly big-ticket mergers and acquisitions such as Electronic Arts — beyond the refinancing efforts dominating the market that often recycle existing debt into lower margins, sometimes repeatedly.
At the heart of the demand for new paper are collateralized loan obligations — the largest buyers of leveraged loans. The rapid creation of CLOs, which package sub-investment grade loans into bonds, is driving demand for debt deals even higher.
US-based CLO exchange-traded funds welcomed $674 million of inflows last week, well above the weekly average $446 million recorded over the past year, according to JPMorgan research published Monday.
“The key element, or the connective tissue we need to produce net new issuance, is M&A,” said Tal Reback, global investment strategist at KKR & Co.’s credit and markets business. “There is pent-up demand and fleeting opportunities to go to market. But there is a pipeline in the works.”
Evidence of that started to emerge in recent weeks. A group of banks led by Goldman Sachs Group Inc. launched a $5.5 billion leveraged loan to help finance Thoma Bravo’s acquisition of human-resources software provider Dayforce Inc. And the home-care business of Reckitt Benckiser Group Plc raised almost $2.4 billion of debt to support its carveout to Advent International.
Advent’s deal isn’t just attracting typical CLO buyers for its term loans but also interest from Middle Eastern, Asian and smaller European banks that look set to buy up to $700 million of it.
While the desire for a headline deal exists, the last big leveraged buyout was for Elon Musk’s $44 billion acquisition of Twitter Inc. in 2022. That left a group of banks led by Morgan Stanley stuck with about $13 billion of debt, and it took until this year for them to finally move that off their balance sheets.
Separately, credit markets are dealing with two sudden distressed situations that took investors by surprise. Auto-parts supplier First Brands Group filed for Chapter 11 bankruptcy, and Tricolor Holdings, a used-car seller and subprime lender, filed to liquidate, leaving lenders facing potentially hundreds of millions of dollars of losses.
WATCH: Electronic Arts is being sold to a group of private investors in a deal that values the company at $55 billion, the biggest leverage buyout on record. Caroline Hyde reports.Source: Bloomberg
EA is being taken private by Saudi Arabia’s Public Investment Fund, Silver Lake Management and Jared Kushner’s Affinity Partners in a deal announced Monday. Representatives for JPMorgan, Silver Lake, PIF and Affinity Partners declined to comment. A spokesperson for EA didn’t reply to requests for comment.
Jared KushnerPhotographer: Zak Bennett/Bloomberg
The jumbo deal is a welcome development for the broader private equity industry, which has been grappling with a prolonged deal drought, limiting its ability to return capital to investors, according to Jake Mincemoyer, global co-head of debt finance at law firm A&O Shearman.
“That flywheel is not fully spinning yet,” Mincemoyer said, referring to a rebound in mergers and acquisitions. “The whole ecosystem needs to start trading assets again.”
The debt commitment is made up of $18 billion that’s expected to be funded at closing, according to a statement, and $2 billion that will be in the form of a liquidity facility, the people familiar with the deal said.
–With assistance from Jeannine Amodeo and Peter Eichenbaum.
(Updates detail of bank interest in Advent’s Reckitt deal in eleventh paragraph)
