The $55 billion privatization acquisition of Electronic Arts has set multiple records, including being hailed as the "largest leveraged buyout in history." JPMorgan Chase's provision of $20 billion in financing for this deal also represents the largest single debt financing commitment by a single bank for such a transaction, earning its place among the record books.
This transaction marks the biggest victory yet for Wall Street lending institutions, which have been striving to defend their turf in financing such deals against the $1.7 trillion private credit industry. These transactions contain some of the most lucrative fees in debt underwriting business.
According to sources familiar with the matter, JPMorgan Chase made this financing commitment through its leveraged finance division rather than its private credit strategy. As the largest bank in the United States, JPMorgan Chase is expected to share risks with competitors by forming a global underwriting syndicate. These sources, who requested anonymity due to the confidential nature of the discussions, indicated that the debt is expected to be rated in the single-B range and will be sold through high-yield bonds and leveraged loans in a cross-border dual-currency transaction structure.
They added that the final sale structure will depend on market conditions at the time of launch.
Typically, private equity firms' corporate acquisition and divestment activities generate substantial transaction volume for the leveraged finance debt market. However, such transactions have remained subdued since the Federal Reserve began raising interest rates in early 2022.
This has led to investors eagerly anticipating new deals, particularly large-scale mergers and acquisitions like the Electronic Arts acquisition. The market is currently dominated by refinancing operations, which often restructure existing debt into lower-margin products (sometimes repeatedly), failing to satisfy investor demand.
The core driver of demand for new debt products is Collateralized Loan Obligations (CLOs), which are the largest buyers of leveraged loans. The rapid issuance of CLOs (which package speculative-grade loans into bonds) is further driving up market demand for debt transactions.
Research published by JPMorgan Chase on Monday showed that CLO exchange-traded funds (ETFs) in the US market attracted $674 million in inflows last week, significantly higher than the weekly average inflow of $446 million over the past year.
"The key element (or 'connecting link') to achieve net new debt issuance is M&A activity," said Tal Reback, Global Investment Strategist for Credit and Markets at KKR & Co. "There's currently pent-up demand in the market, fleeting listing opportunities, and a growing pipeline of transactions in progress."
Signs have begun emerging in recent weeks: a consortium of banks led by Goldman Sachs Group Inc. launched a $5.5 billion leveraged loan to finance Thoma Bravo's acquisition of human resources software provider Dayforce Inc.; Reckitt Benckiser Group Plc's home care business also raised nearly $2.4 billion in debt to support its spin-off to Advent International.
Advent International's transaction not only attracted traditional CLO buyers to subscribe to term loans but also sparked interest from small banks in the Middle East, Asia, and Europe, which are expected to subscribe to up to $700 million in shares.
Despite market appetite for landmark deals, the last major leveraged buyout dates back to Elon Musk's $44 billion acquisition of Twitter Inc. in 2022. At that time, a consortium of banks led by Morgan Stanley was forced to hold approximately $13 billion in debt, which was only finally removed from their balance sheets this year.
Additionally, credit markets are dealing with two sudden distress events that caught investors off guard: auto parts supplier First Brands Group filed for Chapter 11 bankruptcy protection, and used car dealer and subprime lender Tricolor Holdings filed for liquidation, with creditors of both companies potentially facing hundreds of millions in losses.
The Electronic Arts privatization acquisition is being jointly launched by Saudi Arabia's Public Investment Fund, Silver Lake Management, and Jared Kushner's Affinity Partners, with the transaction announced on Monday. Representatives from JPMorgan Chase, Silver Lake, the Saudi Public Investment Fund, and Affinity Partners all declined to comment; Electronic Arts' spokesperson did not respond to requests for comment.
Jake Mincemoyer, Global Co-Head of Debt Finance at A&O Shearman, stated that this massive deal is good news for the entire private equity industry, which has long faced a transaction drought and limited ability to return capital to investors.
"The (M&A activity) flywheel hasn't fully started spinning yet," Mincemoyer said regarding the M&A recovery. "The entire ecosystem needs to restart asset trading."
According to sources familiar with the matter, JPMorgan Chase's $20 billion debt commitment includes $18 billion expected to be in place upon transaction completion, with the remaining $2 billion provided in the form of liquidity facilities, according to a statement.