(Bloomberg) -- Apollo Global Management Inc. and a group of banks led by Bank of America Corp and Barclays Plc have been holding restructuring talks for a slug of Brightspeed debt that could see the banks take a loss, according to people with knowledge of the matter.
Negotiations center around Brightspeed’s owner Apollo and the banks providing new financing to support the company, while the banks would take a haircut on the value of their existing loans, the people added. The new financing would be at least $3.5 billion, some of the people said.
Discussions have been taking place over the course of several months, and no deal has yet been reached, the people said.
Representatives for Apollo, Brightspeed, Bank of America and Barclays declined to comment.
The transaction under consideration resembles other liability management deals struggling companies have undertaken in an effort to adjust to higher interest rates. But the situation is unusual because banks, not groups of investment firms, risk taking losses on the obligations, the people said.
The roughly $5 billion Brightspeed debt load has been a thorn in banks’ side since they agreed in 2021 to provide financing to fund Apollo’s purchase of the telecommunications assets. Such money is intended to be short-term, and later syndicated out to investors in the form of leveraged loans and high-yield bonds.
Shortly afterward, the Federal Reserve began the fastest rate-hiking cycle in generations, and the maximum borrowing costs the banks had promised to provide on the debt were suddenly below average market prices. Banks stuck holding billions of dollars of acquisition debt for Brightspeed and other companies were forced to decide whether to sell their positions and realize losses, or keep the debt on their balance sheets until the market improved.
Groups of banks were able to unload much of the debt as markets thawed, but an attempt to sell Brightspeed’s obligations at steep discounts to par in 2022 failed. Apollo closed its acquisition that same year, but since then, Brightspeed — which provides local phone and broadband services — has struggled.
As Brightspeed’s revenue slid, Apollo tapped PJT Partners Inc. for advice. In a June report, Fitch Ratings wrote that Brightspeed will need to restructure its debt load in the near future, and slashed the company’s credit grade to CCC-, citing earnings underperformance and declining liquidity.
A representative for PJT declined to comment.
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