Banks suffered losses in £ 1 billion bond and loan transactions supporting the acquisition of rival William Hill’s business outside the United States by online British gambling company 888, resulting in the latest debt sale in volatile markets It indicates that it ended in failure.
Investment banks Sudden loss has occurred A series of recent debt sales that are driving more risky takeovers as transactions unravel in the face of rising interest rates and rising investor alertness.
In these transactions, the bank first takes on the debt and then sells it to a professional fund. This means that if an investor demands a higher yield than originally expected, the underwriter can record a loss.
Two banks leading the 888 bond and loan transaction, JP Morgan and Morgan Stanley, were set to conclude the debt sale this week. However, JP Morgan announced on Friday that it would be “postponed until mid-next week.”
The US investment bank quoted a “delay” in completing the document on the US dollar loan portion of the transaction, along with the imminent July 4th holiday.
But bond and loan fund managers, who were asked to buy bonds, said investors weren’t even tempted by double-digit yields, and demand was sluggish, hitting the sale. Banks have started marketing transactions with a yield of about 10%, but now they need to set even higher prices.
JP Morgan and Morgan Stanley declined to comment.
888 is Buy William Hill Business Outside the United StatesThis includes 1,500 UK gambling stores and online operations in markets such as Italy and Spain by casino operator Caesars.
Investors’ willingness to risk has diminished due to rising inflation and the outlook for rising interest rates, with the European high-yield bond index declining by about 15% this year.
In addition to bond market stress, the 2005 UK government review of gambling addiction, which is expected to crack down on gambling addiction, also emphasizes 888 debt trading.
“It’s impossible to comment on this credit before the government’s white paper comes out,” said one loan fund manager.
UK Government Policy Documents, It will expire within a few days. Marks the industry’s largest shake-up in 17 years. Cultural secretary Nadin Dolly will recommend a series of steps, including a maximum stake of £ 2 to £ 5 for online casinos, a rigorous check of customer income levels, and a ban on free bets and VIP packages for problematic gamblers. is.
However, the sector remains uncertain about the details, especially whether the government will choose stricter regulations, such as new taxes on gambling interests to fund public health initiatives. “It’s a lot of pain. I don’t know exactly where it’s coming,” said one gambling industry executive.
When banks struggle to sell underwriting transactions, they have to offer investors debt at a discount to face value, leaving them a loss. JPMorgan has begun selling 888 deals for about $ 92-93 cents for $ 1, but fund managers expect the deal to close at even greater discounts in the end.
A group of banks undertaking the transaction, including Mediobanca and Barclays, have already decided to hold approximately £ 760 million of 888’s debt on their balance sheets rather than selling them to investors. increase.
Gambling transactions are the latest leveraged buyouts that hurt investment banks and undertook debt packages before market downturns weighed on demand for more risky debt.
A group of banks led by Goldman Sachs backed up £ 1 billion in bonds. Acquisition of British supermarket Morrisons Great discount in May. These banks still have billions of pounds of unsold loans to back up their transactions and are expected to suffer further losses.
European high-yield corporate bond issuance has declined significantly this year in these tricky situations. According to Refinitiv data, many companies have fallen 77% compared to the first half of 2021, when they rushed to fix favorable interest rates in the benign market.
“It’s one of the things that will be achieved in a good market, but it has to come with some concessions,” said one bond investor whose team passed 888 transactions. “In a bad market, [it is] Much more difficult. ”
Volatility and gambling reforms strengthen odds for 888 bond trading
https://www.ft.com/content/5ef704a0-d62c-47ec-94ff-6820e7fc5d12 Volatility and gambling reforms strengthen odds for 888 bond trading