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Illustration: Aïda Amer/Axios

The largest LBO financing since the financial crisis is coming to a debt market near you. A bevy of banks made their initial pitch this week to sell investors part of a $15 billion loan backing the $34 billion buyout of medical supplies company Medline Industries.

What's new: A banking group led by JPMorgan and Goldman Sachs asked a select group of high yield fund managers to buy a piece of the Medline debt commitment known as a "bridge loan," sources tell Axios. Investors were asked to make their decisions by Wednesday.

Why it matters: How things go with Medline will signal whether private equity sponsors can even pull off the kinds of massive deals that were more common prior to the financial crisis — since a large debt raise can be daunting and is one factor that can limit deal sizes.

  • And for the banks, offloading the commitments to investors helps them pare back the risk on their balance sheets and free up capacity to commit to even more deals in the LBO pipeline.

How it works: Banks don't always bother syndicating bridge exposure — but they almost always do for the larger deals.

  • The bridge exposure isn't funded debt — it's just a commitment to fund if needed — and the banks pay investors a fee for their trouble.

Between the lines: Bridge loans are temporary and will later be replaced with a permanent financing.

  • The success or failure of a bridge syndication offers the first clues as to what debt investors think of the deal. That's important, because if not enough investors buy into the permanent financing down the road, then the debt gets stuck on the banks' balance sheets.

The verdict? Medline — which is selling a majority stake to Blackstone, Carlyle and Hellman & Friedman — fits the bill of appealing to a wide audience of credit investors. It's a non-cyclical business with a reasonable amount of post-LBO debt relative to its earnings.

  • The banks are likely to launch syndication for the company's actual funded debt financing — $10.8 billion in secured debt and $4 billion in unsecured bonds — in September.

The bottom line: Private equity fundraising is on pace for a record year, according to PitchBook. Sponsors may face any number of challenges deploying the mountain of dry powder to gigantic deals — for now the debt market isn't one of them.

Go deeper

Dan Primack, author of Pro Rata
Oct 13, 2021 - Economy & Business

Scoop: Arctos raises over $3 billion to buy stakes in pro sports teams

Illustration: Aïda Amer/Axios

Arctos, an upstart private equity firm founded to buy into pro sports teams, has secured over $3 billion in investor commitments, Axios has learned. The firm originally planned to raise between $1 billion and $1.5 billion.

Why it matters: Private equity has become obsessed with pro sports, from American basketball to European soccer to New Zealand rugby. And Arctos leveraged this fervor on the fundraising circuit.

The E-commerce shopping spree

Illustration: Aïda Amer/Axios

Retailers have gotten really good at selling stuff online. So much so, investors want them to separate from the business units that do just that.

Why it matters: Spinning off these crown jewels may jeopardize both the physical and e-commerce sides of the companies in the long run by breaking the benefits of hybrid operations, analysts say.

3 hours ago - World

U.S. envoy to visit Sudan as "most dangerous" crisis intensifies

The sit-in in Khartoum. Photo: Mahmoud Hjaj/Anadolu Agency via Getty

U.S. envoy for the Horn of Africa Jeffrey Feltman will visit Khartoum this week amid what Prime Minister Abdalla Hamdok has called the “worst and most dangerous" crisis of Sudan’s transition to democracy, two sources with direct knowledge tell Axios.

Driving the news: Roughly 2,000-3,000 people had joined a sit-in in Khartoum as of this afternoon, per Reuters, after protesters massed over the weekend to call on the military to bring down the government. The protests came just four weeks after a failed military coup.

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