Tariffs Stoke Fears That Hung Debt Will Return

Rachel Graf and Aaron Weinman

Sat, Apr 5, 2025, 12:00 PM 6 min read

(Bloomberg) -- Deals in leveraged finance have stalled, and markets have been upended, raising the possibility that banks might once again get stuck with debt they’ve committed for acquisitions.

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US President Donald Trump’s announcement of the steepest American tariffs in a century this past week stoked recession fears and sent stocks plunging. Financing for a Canadian auto-parts maker and a deal supporting H.I.G. Capital’s bid for a Canadian software provider were both delayed, creating risks for the lender groups, as the fallout rippled through leveraged finance markets.

“For the time being, we need things to calm down before new risk is put in front of investors,” said Kelly Burton, a managing director who covers US high-yield investments at Barings. “It’s hard to justify why you would try to price out ‘early looks’ right now with the market on unsteady ground.”

Wall Street lenders typically sell credit they’ve committed for an acquisition before it closes, but face the prospect of being left with so-called “hung” debt if they can’t move underwritten loans off their balance sheets by that time. Banks including Citigroup Inc. and JPMorgan Chase & Co. face an April deadline to close ABC Technologies Holdings Inc.’s purchase of TI Fluid Systems Plc, while a $900 million leveraged loan sale failed to attract enough investor demand by the Thursday deadline. A $1.325 billion junk-bond sale hasn’t launched.

Meanwhile, a Bank of Montreal-led deal to fund H.I.G.’s purchase of Converge Technology Solutions was also struggling to drum up enough investor support for a separate loan sale. The deadline passed on Tuesday, though banks have until the end of June before the acquisition is slated to close.

The turbulence was visible in other parts of the credit market too. An attempt to refinance $660 million of junk debt for Chuck E. Cheese owner CEC Entertainment fell short as investors shied away from consumer-facing companies, while efforts to refinance more than $5 billion of private credit loans from Finastra Group Holdings Ltd. fell apart.

New issuance of junk debt, too, has ground to a halt in the US. The past six trading sessions saw just one new high-yield bond and no leveraged loan launches.

“Why commit a bunch of new capital in front of risk?” said Jeremy Burton, a managing director at PineBridge Investments.