(Bloomberg) -- Slowly but surely, investment bankers from New York to London are chipping away at the tens of billions of dollars in leveraged buyout debt that remains famously stuck on their balance sheets.

As loan prices in the US and Europe stage a spirited rebound, global banks are managing to sell down small chunks of risky financing packages that powered debt-fueled acquisitions in the low-rate era. That’s no mean feat given the diminished investor appetite for the obligations just a month ago. 

Underwriters for the buyout of Citrix Systems Inc. have offloaded another sliver of a massive debt package that they were left saddled with during last year’s market slump. Other Wall Street institutions led by UBS Group AG are holding meetings to offload loans for the buyout of Roper Technologies Inc., while a roughly $2 billion loan for NielsenIQ is expected to start pre-marketing soon.

There’s a long way to go before Wall Street manages to flog off the bulk of the risky loans and bonds left on their books to institutional investors — a burden that has clogged up the fee-rich M&A machine and changed the power dynamics in the risky lending market. 

But some investors are betting the loan rally has room to run if global growth holds up, a boon for bankers and private equity executives grappling with the slowdown in deals.

“As long as the economy doesn’t disappoint the markets’ currently constructive expectations for a soft landing, returns have a fighting chance at holding up,” said Jeremy Burton, a portfolio manager at PineBridge Investments.

Risky credit has rallied in tandem with a global rebound across assets, a move attributed to growing bets that the Federal Reserve will secure a soft economic landing, just as credit managers adopt fresh positions for the year ahead. A flurry in new collateralized loan obligations — traditionally one of the biggest drivers of demand for leveraged debt — is also helping market sentiment. January saw a big spike in fresh CLOs in the US, worth over $3.2 billion.

“There’s definitely a lot of appetite for new loans in the market,” said Roberta Goss, senior managing director and head of the bank loan and collateralized loan obligations platform at Pretium Partners LLC. “There’s been plenty of demand for the handful of loans that have been sold in January, which speaks to the health of the market and is partly driven by new CLO creation.”

It’s a similar story in Europe where underwriters are whittling away at their so-called hung debt burdens. The expiry of sales restrictions has enabled Goldman Sachs Group Inc. to offload its remaining £25 million ($31 million) or so of sterling loans in Wm Morrison Supermarkets Plc. Goldman, along with the likes of Bank of America Corp. and Barclays Plc, sold sterling loans in Ekaterra BV, a tea business Unilever Plc sold to CVC.

Banks also managed to raise a term loan B — typically a financing commitment that gets sold onto investors — worth €343.4 million ($373.3 million) for IT firm Inetum SA. That will help reduce the term loan A that they were stuck holding last year as markets soured. Pricing is also on the way up. The €1.4 billion loan for Nord Anglia Education flexed tighter on healthy demand. 

Leverage Uptick 

Private equity sponsors are also managing to add leverage to deals that were structured very conservatively only a few months ago. Stonepeak Partners, for example, has raised $875 million of debt to help finance its acquisition of Intrado Corp.’s safety business, which was originally backstopped entirely by equity.

Still with loan downgrades seen accelerating, there’s a limit to the rebound. The floating-rate nature of the debt also means borrowers’ interest costs rose last year alongside central bank rate hikes, spurring the likes of Vanguard to steer away from weaker parts of the asset class.  

“The rally we’ve seen in the loan market is mainly driven by technicals, such as loan repayments and CLOs ramping up. But we expect loan prices to soften through mid year,” said Dave Preston, head of structured credit research at AGL Credit Management LP. “We are still seeing downgrades and given the recession outlook, we remain cautious.”

Elsewhere in credit markets:

Americas

Mauser Packaging Solutions Holding Co. kicked off a $3.5 billion sale of junk bonds and leveraged loans on Wednesday to refinance debt, becoming the latest company to ride a rally in credit markets to push out upcoming maturities.

  • Thrift-store chain operator Savers LLC will market a $500 million, payout-backing bond issue through Thursday. The transaction is testing the renewed risk appetite in the junk bond market, which has seen a recent surge in sales.
  • Premier Brands Group, the entity that emerged from the bankruptcy of Nine West Holdings, is seeking lender permission to boost the size of its asset-based loan and extend maturities on its debt, according to people with knowledge of the matter
  • The release of Americanas SA’s list of almost 8,000 creditors filed overnight with a Brazilian court as part of its bankruptcy protection is adding to confusion around the retailer’s downfall
  • January’s sales of asset backed securities have already surpassed issuance at this time last year, with new issue supply standing at $17.3 billion
  • For deal updates, click here for the New Issue Monitor
  • For more, click here for the Credit Daybook Americas

EMEA

Bumper deals from public sector borrowers drove over €23 billion of issuance in Europe’s primary bond market on Wednesday.

  • Supermarket group Asda’s bondholders are demanding more details about a mooted takeover of EG Group Ltd.’s UK petrol operations, a deal that would saddle the grocer with more debt and could lead to ratings downgrades
  • Supply of hybrid bonds — subordinated notes that combine elements of debt and equity — is already running at more than twice last year’s pace with $5.3 billion priced so far this month

Asia 

Shares in Adani Group companies lost $12 billion in market value after US investor Hindenburg Research said it was shorting the conglomerate’s stocks and accused firms owned by Asia’s richest person of “brazen” market manipulation and accounting fraud.

  • India’s maiden sovereign green bond issuance fetched a better-than-expected yield as the government takes baby steps to raise funds for its transition to cleaner energy
  • Ineos is lining up a $650 million loan to bank its acquisition of a 50% stake in Shanghai SECCO Petrochemical
    • The deal was underwritten by at least two banks and will have dollar and yuan tranches
    • Ineos and Sinopec announced in December that they have completed the acquisition, and also established a 50:50 joint venture for Acrylonitrile Butadiene Styrene

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--With assistance from Paula Seligson, Davide Scigliuzzo and Abhinav Ramnarayan.

(Updates with Roper loan sale in paragraph 3, Intrado pricing in paragraph 11.)

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