Citigroup is nearing a deal to sell up to $12 billion of its leveraged loan portfolio to a group of private equity firms. It is rumored that Apollo Management, the Blackstone Group and TPG would buy the loans at a discounted price, which would fetch Citi about 90 cents to the dollar on an average. Apollo would buy about half the portfolio, with Blackstone and TPG taking the rest. Apollo has a long history of buying distressed debt, while Blackstone and TPG have recently established funds for the purpose.If the deal goes through it will be the largest sale of leveraged loans in history.
Deals like these could be the first sign that the market for such loans is stabilizing. John Mack, Morgan Stanley CEO said Tuesday, that he believed a turnaround was in sight and his bank would consider buying such distressed loans because of their attractive price.
The sale is expected to be announced next week, just as the bank gets ready to report its first quarter earnings. It is a foregone conclusion that it will be taken as a positive development for the bank which was saddled with $43 billion worth of such loans at the end of the last quarter.As an analyst puts it,'With each markdown an sale, they are putting the pain behind them and the problems are starting to get fixed.'
Meanwhile in an interesting development, investment banking firms Goldman Sachs and Morgan Stanley said in a SEC filing Wednesday, that the value of their level three assets, which include hard to value securities like mortgages, rose last quarter. Goldman has reported an increase to $82.3 billion from $54.7 billion at the end of November last year, while Morgan Stanley said its level three assets rose from $73.7 billion in November to $78.2 billion.