The borrowers of dangerous American companies have been locked out of the bond market with a freeze echoing across Wall Street from Donald Trump’s tariff blitz, threatening a tentative rebound in the transaction.
Low-rated companies were unable to sell their debts in the 1.4 tonnes of US high-yield bond market as Trump unleashed market turmoil and the US recession fears announced earlier this month.
The junk bond market freezes threaten to strike private equity companies that frequently rely on and frequently rely on to fund acquisitions. It also increases the risk of banks providing short-term loans for such transactions before the acquisition company, ensuring long-term financing in the bond market.
“Everything is pending,” said Bob Krickeff, head of multi-asset credits at investment firm Schenkman Capital Management. “No one is trying to price a transaction in this environment.”
Trump’s aggressive trade agenda had a calm impact on investors’ willingness to support risky transactions.
The purchase of Hig’s Converge Technology Systems and the sale of bonds to fund the acquisition of Ti Fluid Systems by Apollo-backed ABC Technology is one of the deals suspended this month due to market disruptions.
Since Trump announced his “mutual tariffs,” banks have been redrawing the terms of the loan to provide clients to acquirers to lend their acquisitions and increasing interest rates to protect them from losses.
Some people, including Citigroup, Morgan Stanley and JPMorgan Chase, had withdrawn bond and loan financing transactions that high-yield investors had previously reluctant to return to the traditional debt market, people explained the issue.
Wall Street banks face the potential losses on the billions of dollars of short-term loans they promised in hopes that junkbond investors will ultimately take on the debt.
However, as in times of stress, if they agree that the interest rates they agree to differ significantly from the market level are significantly different, the bank could be wrong.
The sale of the market comes when the private equity industry, and banks that have long profited from transactions, struggle with hopes of dropping and decline amid the threat of recession.
Jeff Kivitz, chief investment officer at investment firm Canyon Partners, said “some of the existing commitments could be trapped in the bank’s balance sheet,” adding that the bank “has no intention of providing any indication of a new commitment amidst the volatility.”
The market for new aptitude bonds is also rising, with only one new trading price between the April 2 “liberation day” and the president’s order suspending tariffs last Wednesday.
Bankers and fund managers have been closely scrutinizing the sudden rise in so-called credit spreads. This is a measure of the extra costs that corporate borrowers must pay to borrow compared to U.S. government appetite markers for debt and risk.
Data from the Ice Bofa index shows that before retreating slightly after Trump agreed to suspend some tariffs, the spread shot at the highest level in nearly two years reached 4.61 percentage points.
Goldman Sachs last week raised this year’s high yield and leveraged loan borrowers’ default forecasts to 5% and 8%, respectively, up from 3% and 3.5%.
“Although lower than typical recession levels, these forecasts are well above the long-term average, reflecting the leveraged finance market and multiple simultaneous headwinds.”
According to LSEG data, $13 billion in high-income bonds and loans have been issued so far this month, well below the monthly average of $52.5 billion since 2021.
In another indication of the junk bond market freeze, Citigroup has suspended its efforts to raise more than $2 billion in high-yield bonds and loans through traditional debt managers, funding the acquisition of private equity firm Pater Square Capital’s dental office and veterinary health company Paterson Company.
According to those who are being described on the issue, the banks are currently trying to raise capital from private credit funds. Private credit funds tend to invest in high-risk loans, resulting in borrowers charging higher interest rates for additional risk.
Other acquisition companies also use their personal credit. Baypine, a private equity group founded by Blackstone and Silver Lake veterans, signed a deal last week to buy Life Sciences Group Cenexel for around $1.3 billion. Baypine has turned its eye to the private credit giant Blue Owl to raise funds.
JPMorgan, Citi, Morgan Stanley, Hig, Blue Owl, Patient Square, ABC Technologies and Baypine declined to comment. Patterson and Converge Technology did not respond to requests for comment.
Additional Reports by Oliver Burns
