(Bloomberg) -- A group of banks led by Bank of America Corp. and Barclays Plc are struggling to attract investors for a roughly $3.9 billion debt financing package to help fund a buyout by Apollo Global Management Inc., potentially forcing them to fork over the cash themselves.

In the latest blow for Wall Street lenders since the Citrix Systems Inc. debt debacle, neither the $2 billion leveraged loan nor the roughly $1.9 billion junk bond on this latest transaction are close to deal size as of Wednesday, according to people with knowledge of the matter, who asked not to be named discussing a private deal. 

The loan and the bonds have been marketing for more than a week. Commitments on the loan are due at 5 p.m. New York time on Thursday, and the bond is expected to price late this week, Bloomberg reported. 

Apollo is buying telecom and broadband assets from Lumen Technologies Inc., which will be run under the Brightspeed brand. The transaction is expected to close early in the fourth quarter, according to a filing.

Though the deal is struggling, there is still time for investors to change their minds and submit orders in the coming days, especially if banks decide to sweeten pricing. Last week in the Citrix transaction, private equity firm Elliott Investment Management bought about $1 billion of the junk-bond deal supporting its own buyout of the software company, Bloomberg reported.

Representatives for Bank of America, which is leading the Brightspeed loan, Barclays, which is leading the bond, and Apollo declined to comment. Representatives for Lumen did not immediately respond to a request for comment.

Bank Pain

The lack of demand so far is the latest headache for banks struggling to offload debt commitments underwritten before a broad repricing of risk assets drastically increased the cost of borrowing in just a few months. Banks underwrote the debt for Brightspeed in the lead-up to Apollo’s announcement in August of 2021 -- long before the war in Ukraine, recession fears and the Federal Reserve’s supersized rate hikes hit the credit-market headlines. 

That means the maximum interest rates banks promised Apollo are likely much lower than where the market currently trades, putting the banks on the hook for the difference as they try to sell the debt to money managers. 

In the Citrix debt transaction that priced last week, a different group of banks realized roughly $600 million in losses, and would have likely seen more than $1 billion total if they hadn’t decided to hold onto some of the debt.  

Banks had already decided to hold $1 billion of loans for the Brightspeed deal on their own balance sheets before launching the transaction in an effort to reduce the amount they needed to sell, Bloomberg reported. The other $2 billion loan is being marketed at a margin of 500 basis points over the Secured Overnight Financing Rate at a discounted price of 92 cents on the dollar. Early pricing discussions on the roughly $1.9 billion bond are for an 8% coupon with a discount for an all-in yield of 10%.

Contrast that to software company Citrix, which also had a bond that priced with a yield of 10%. That buyout is seen as having less execution risk than Brightspeed, which is in the process of a multi-billion dollar capital investment strategy to transition from copper to fiber. 

The Brightspeed deal has also been complicated by two other factors. Some holders of bonds that are expected to remain outstanding under the Embarq name have claimed that the new financing would put one of the company’s subsidiaries in default by violating terms of the existing debt agreements, Bloomberg reported. 

In addition, Apollo is also funding more than 60% of its equity committment via a five-year loan provided by banks. 

The market is waiting for two more high-profile transactions that were underwritten before the cost of borrowing spiked: $8.35 billion of bonds and loans for the buyout of TV ratings company Nielsen Holdings by Elliott and Brookfield Asset Management, and $5.4 billion for auto parts firm Tenneco Inc.’s buyout by Apollo. 

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