(Bloomberg) -- A bank group led by Jefferies Financial Group Inc. has lost about $15 million after being forced to sweeten terms on a leveraged loan for M2S Group Intermediate Holdings Inc., according a person with knowledge of the matter.
Jefferies is absorbing about half the loss, said the person, who requested anonymity to discuss confidential information.
Jefferies, Wells Fargo & Co., Deutsche Bank AG and Macquarie Group Ltd. underwrote the loan, which is being used to fund a $575 million acquisition by the label and packaging maker and to also refinance debt.
The $870 million loan priced at 93 cents on the dollar, versus the 99 cents that the banks initially sought to sell it at earlier this month. The original package included a margin of 4.25 to 4.5 percentage points over the benchmark rate, whereas the final pricing was 4.75 percentage points over that rate, according to the person. The financing also includes a separate $100 million credit facility.
Representatives for Jefferies, Wells Fargo, Macquarie and Deutsche Bank declined to comment. Representatives for M2S and its private equity backer Wynnchurch Capital LP did not immediately respond to requests for comment.
When banks commit financing, the goal is to sell the debt to investors in the form of junk bonds or leveraged loans before the deal closes. If anything goes wrong in the syndication process, the banks are on the hook to provide the financing themselves.
Banks also promise companies a maximum borrowing cost, and have to eat the different if the debt ends up selling above those rates.
Jefferies began shopping the M2S loan before market chaos erupted in early August. Although credit conditions have improved, investors are still hesitant to support companies that are not near the top of the credit spectrum.
M2S’s corporate credit ratings are in Moody’s B2/B category, with a stable outlook — which means it is risky, but not among the lowest-rated. The company makes everything from barcode-scannable labels to self-adhesive window films through brands including PolyTherm and SOLYX. Wynnchurch became a major investor in 2021.
Commitments for M2S’s debt were originally due on Aug. 9, but banks had to extend the process and sweeten terms to attract investors.
Numerous banks either got stuck holding debt or had to sell it at a loss in 2022 and 2023 after the Federal Reserve started the fastest cycle of interest-rate increases seen in a generation. The M2S deal represents one of the first to cause losses after debt markets absorbed the higher interest rate environment.
--With assistance from Jeannine Amodeo.
(Updates to include more details on financing in fifth paragraph. An earlier version of this story corrected the loan size.)
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