Deutsche Bank-Led Group Said to Avoid Loss on ConvergeOne Loans

(Bloomberg) -- Banks sold $1.2 billion of loans for the buyout of ConvergeOne without suffering losses on the transaction after they were stuck with the debt for longer than expected, according to a person with knowledge of the matter.

Lenders led by Deutsche Bank AG and UBS Group AG had to take the loans on their books after the market for riskier assets soured. A plan to relaunch the offering in January faced another obstacle: the discovery of a case of employee fraud at the IT services provider, which led to an $11 million inventory writedown. The loan package for CVC Capital Partners’ buyout of ConvergeOne was the biggest that banks were stuck with as the market froze starting late last year.

The sale of the loans is the latest sign that credit markets are now thawing. The biggest portion of the offering -- a $960 million seven-year loan -- was sold Thursday at 96 cents on the dollar, while a $275 million junior piece cleared the market at 94 cents, according to the person. The steep discounts ate into much of the fees banks received on the deal, but did not result in outright losses for them, the person said.

Accounting firm KPMG was hired to investigate the fraud incident, and concluded in a report that it was an isolated episode related to a rogue employee and did not reflect broader issues in the company’s internal controls, said the person, who asked not to be identified as the matter is private. The impact of the writedown was partly mitigated by insurance the company had purchased, the person said.

Average U.S. leveraged loan prices started falling in October, and by the end of December were below 94 cents on the dollar, their lowest since mid-2016, according to the S&P/LSTA Leveraged Loan Price index. This year, they’ve rallied to more than 96 cents on the dollar.

Representatives for Deutsche Bank, UBS, CVC and KPMG declined to comment.

--With assistance from Lara Wieczezynski.

To contact the reporter on this story: Davide Scigliuzzo in New York at dscigliuzzo2@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Dan Wilchins, Dawn McCarty

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