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The banks that underwrote Citrix Systems’ buyout debt are facing some potentially tough choices over the next few days, as they try to offload as much of the risk as possible while minimizing their losses. Their predicament is getting tougher as market sentiment sours.

The Bank of America-led syndicate finally launched the first part of the syndication today: a roughly $4.5bn term loan B, split between a $4.05bn US dollar tranche and a $500m-equivalent tranche denominated in euros.

Sources told 9fin that much of this debt has already been pre-placed after an extensive premarketing process. If the banks can generate more demand over the coming days, they may upsize the TLB portion and downsize the TLA they plan to hold on their own balance sheets.

To tempt institutional investors into the deal, they are offering a generous OID in the region of 92, the sources said. The coupon for the US dollar tranche is talked at around SOFR + 450bps.

“It is an exercise in how much pain do they want to take,” said a portfolio manager at a large US asset manager. “It’s about how much money they want to lose, versus how much of the paper do they want to syndicate.”

The early pricing talk implies a significant premium over the 7.17% average yield to maturity on loans in the S&P/LSTA index. Sources also noted that pricing looked attractive compared to many of Citrix’s peers.

“Pricing is pretty attractive, it’s coming pretty wide of what you can get elsewhere in software,” said a buyside trader. Pricing for the secured bond component, expected to launch in the coming days, is reportedly being floated in the high 8% area.

Sources also noted the potential for the deal’s pricing to look less attractive in a few weeks’ time. Bankers working for Citrix and other issuers — including NortonLifeLock, which today announced a $1.2bn bond offering — may be expecting market conditions to deteriorate.

“The fact we're seeing these two reasonably sized deals first week back suggests PE sponsors and banks are not liking what they're seeing, want to clear these deals before we see more volatility and higher rates,” said an investor.

An official lender call is scheduled for tomorrow morning at 11am ET, although plenty of market participants have already had the chance to familiarize themselves with Citrix’s credit profile during the premarketing process.

There are lots of moving parts to this transaction: Citrix, which is already undergoing a transition from a license-based revenue model to a subscription business, is being merged with TIBCO Software but selling Wrike, the productivity software provider it acquired just last year.

As we wrote last week, Citrix’s soon-to-be owners — Vista Equity Partners and Evergreen Coast Capital, the private equity arm of Elliott Management — are targeting around $500m of cost savings as part of the deal.

But not all investors are sold on the potential for meaningful synergies between Citrix and TIBCO, with some suggesting the two companies were not an ideal match.

“The businesses aren’t that complementary, we feel like this deal is a bit of financial corporate engineering,” said the trader. Pro forma leverage is also relatively high, at 5.2x through first lien debt and 7.1x total.

Other sources said that the drama surrounding the Citrix syndication — a saga that has been weighing on the leveraged finance market for months now — might lead some investors to steer clear of the deal.

The deal has a “negative attachment”, said a buysider: “This is one more thing to overcome with investment committee. It’s not worth the brain damage.”

BofA declined to comment for this article. Citrix, Vista and Elliott did not respond to requests for comment.

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