Europe Gets U.S. Bond Scraps in 2019's Biggest LBO Deal

(Bloomberg) -- The European bond market is the latest to get pushed aside by the boom in U.S. high-yield debt.

This year's largest buyout financing, the $10 billion cross-border deal for the car-battery unit of Johnson Controls International Plc, will be dominated by U.S. dollar junk bonds. European investors had anticipated a bigger share would be issued in the euro market than the planned $750 million-equivalent of senior secured bonds. Bankers finalizing the capital structure of Power Solutions are now raising approximately $4 billion from American bond investors.

The U.S. bond sale will be split between $2 billion of secured notes and $1.95 billion of unsecured ones. The loan portion of the deal had already been pared back to $5.45 billion in favor of more bonds last week with $3.2 billion to be sold in the U.S. and a $2.25 billion-equivalent issue in Europe.

Read More: Biggest LBO Financing of 2019 Shows Junk Bonds Regaining Fervor

While both markets have roared back following December's sell-off, the U.S. rebound has been more ferocious. U.S. junk bonds have returned 6.33 percent this year, outpacing Europe's 4.77 percent. American high-yield bond funds have received about $10.6 billion of new money versus 1.4 billion euro ($1.6 billion) of inflows for European funds in 2019, according to Lipper and JPMorgan Chase & Co. data.

The European high-yield market may also be less attractive for issuers because of a dearth of deals. Initial price talk on the euro notes are in the low 5 percent yield area. There have been only seen six new issues so far this year, and mostly from the highest-rated junk credits.

Banks Are Said to Market Riskier Power Solutions Debt at 9% Area

Appetite for more complex or subordinated debt has yet to be tested amid lingering investor caution due to a range of concerns following last year's volatility. And Power Solutions -- which is being bought out by Brookfield Asset Management Inc. and Caisse de Depot et Placement du Quebec -- apparently won't be the one to do it.

The meetings for the euro notes will be kicked off on Wednesday, while the U.S. roadshow will begin March 11.

To contact the reporters on this story: Lisa Lee in New York at llee299@bloomberg.net;Laura Benitez in London at lbenitez1@bloomberg.net

To contact the editors responsible for this story: James Crombie at jcrombie8@bloomberg.net, Nikolaj Gammeltoft, V. Ramakrishnan

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