Posted on: August 28, 2024, 07:42 am.
Last updated on: August 28, 2024, 07:42.
Deutsche Bank AG is reportedly conducting a $4.325 billion bond/loan transaction that will be used in part to finance Apollo Global Management’s (NYSE: APO) recently announced acquisition of the global gaming and PlayDigital businesses of Everi (NYSE: EVRI) and International Game Technology (NYSE: IGT).
Unidentified sources with knowledge of the matter said Bloomberg that the amount of the bond and the leveraged loan is not yet known. Last month, Apollo surprised investors with a $6.3 billion offer for Everi and the two IGT companies. In February, IGT and Everi announced a $6.2 billion deal that would have resulted in a merger of the slot machine maker with the two IGT companies.
Under the terms of the Apollo offering, the private equity firm will pay gross proceeds of $4.05 billion to IGT and $14.25 per share to Everi investors.
Before Apollo became interested in these companies, IGT had reached an agreement with Deutsche Bank and Macquarie Capital for $3.7 billion in financing to acquire Everi and combine the Las Vegas-based gaming equipment maker with its global gaming and digital operations.
Deutsche Bank’s financing schedule for Apollo
Deutsche Bank and Macquarie, which are also involved in the financing, have some time to orchestrate the sale of bonds and leveraged loans for Apollo’s financing, as the private equity firm said when announcing its takeover plans that it expects the transaction to close in September 2025.
Until then, banks have time to issue high-yield bonds and leveraged loans, Bloomberg. High-yield corporate bonds, also known as junk bonds, are bonds that are not investment grade, so issuers must sell these bonds at higher interest rates to compensate investors for the higher risk.
Leveraged loans are usually made to junk-rated companies and therefore also carry interest to compensate lenders for the additional risk. One of the benefits of leveraged loans is that they are backed by floating-rate instruments, meaning they are often less sensitive to interest rate changes than fixed-rate bonds.
These instruments are often used to provide credit to buyers in mergers and acquisitions and can be secured by assets such as real estate, equipment and intellectual property.
Speaking of interest rates…
Deutsche Bank and Macquarie may be waiting for a Fed rate cut before actively marketing junk bonds and leveraged deals on Apollo’s behalf. The Fed is widely expected to do so next month, possibly by as much as 50 basis points.
This would likely lead to lower financing costs for issuers of high-yield bonds, even though the average interest rate on highly rated junk bonds has been falling steadily over the past ten months.
“The effective yield on U.S. Class B high yield bonds is 6.63%, compared to 6.62% in the previous trading day and 8.53% over the past year. This is lower than the long-term average of 8.48%,” according to YCharts.
