Skittish Banks Turn to Little-Used Financing Trick for Buyouts

A Wall Street sign near the New York Stock Exchange (NYSE) in New York, US, on Monday, April 21, 2025. US stocks tumbled as President Donald Trump continued to verbally attack Jerome Powell, calling on the Federal Reserve chair to cut rates as signs mount the president's trade war is pushing the economy toward recession. Photographer: Michael Nagle/Bloomberg Photo by Michael Nagle /Bloomberg

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(Bloomberg) — Wall Street banks, stung by debt markets shutting down last month as trade wars escalated, are taking less risk in some of their efforts to win financing business for mergers and acquisitions.

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Junk-rated companies and private equity firms have lined up about $17 billion of debt recently for purchases of everything from power plants to a chain of gas stations. But they are using an unusual tool for that financing: the 364-day bridge loan.

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It’s a far cry from the standard financing for buyouts, where banks promise to provide financing for years, often with a cap on the interest rate the borrower will have to pay. Wall Street firms look to sell that debt to investors, but often agree to provide that funding even if markets are closed, and they have to hang onto the risk for years.

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“It is very rare to see this structure in a sponsor-backed LBO,” said Peter Toal, Barclays Plc’s global head of fixed income, referring to 364-day loans. “In times of volatility, it’s an easier structure for the banks to commit to, no question about it.”

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After junk-bond and leveraged-loan markets effectively closed last month in the wake of US President Donald Trump’s tariff announcements, banks were stuck holding onto billions of dollars of debt they couldn’t sell to investors. Hanging onto that debt can translate to hits to earnings for Wall Street firms. 

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Now, borrowers are getting 364-day bridges that are effectively lines of credit for their acquisitions, which they can tap if they can’t sell bonds or leveraged loans before they close their acquisition.    

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Of course, not all borrowers are taking this route. Banks provided a $1.6 billion committed financing package for KKR & Co.’s $3.1 billion acquisition of post-trade services company OSTTRA as well as $2 billion for Silver Lake Management’s purchase of a 51% stake in programmable chips unit Altera from Intel Corp.

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And the risk of acquirers needing to tap these bridge loans is falling: capital markets have been reopening this month, as the US-China temporary truce implies a thawing of global trade relations. 

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Herc Holdings Inc., for example, lined up bridge debt for as much as $4.5 billion in February for its takeover of construction machinery supplier H&E Equipment Services Inc. Herc is in the market this week, seeking to borrow a combined $3.5 billion in bonds and a loan to support its acquisition, Bloomberg News reported. 

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Elsewhere, NRG Energy Inc.’s $12 billion buyout of power plants from LS Power Equity Advisors includes nearly $4.4 billion in bridge debt. Sunoco LP’s acquisition of fuel retailer Parkland Corp. is backed with a $2.65 billion loan, and Clearlake Capital Group’s buyout of Dun & Bradstreet Holdings Inc. also eschewed a committed financing.