Banks lost $600 million this week in completing the largest corporate junk bond sale of 2022. But the financial damage caused by the underwriting of Citrix’s $16.5 billion leveraged buyout may only be beginning.

After dumping $8.55 billion in bonds and loans, lenders like Bank of America, Goldman Sachs, and Credit Suisse still have billions more of Citrix debt on their books that’s worth far less than it was Time when they agreed to draw her in January. And the banks still hold far more debt from financial packages backing takeovers of television ratings group Nielsen, television network Tegna, auto parts maker Tenneco and, if completed, Elon Musk’s $44 billion takeover of Twitter.

Citrix’s debt sale was seen as a test for capital markets, which have been shaken since Russia invaded Ukraine, global growth slowed sharply and central banks from Frankfurt to Washington began aggressively raising interest rates. Demand was weak as money managers preferred to hold cash or higher quality assets than lend to risky companies and private equity firms. A banker involved in the deal said it was a “bloodbath”.Interest was so low that one of the investors who bought the $1 billion in bonds was Elliott Management — which, along with Vista Equity Partners, is also one of two private investment groups buying up Citrix, according to those on the Persons informed of the matter and the documents viewed by the Financial Times.

“We had to get the pigs through the python,” said a second banker involved in the buyout financing. “Everybody felt fine in August but unfortunately Jackson Hole happened and then everything went haywire,” the banker added, playing on statements by Federal Reserve Board Chair Jay Powell last month in Jackson Hole, Wyoming , at which point he made clear his determination to tame inflation with higher interest rates.Borrowing costs have risen sharply. As banks rushed to lend to businesses and private equity firms earlier this year, a US company with a low single-B debt rating could expect an interest rate of around 4.74 percent. Today the rate is 9.2 percent. As Citrix has shown, even this level may not be enough to attract potential creditors.

Bankers ended up selling $4 billion worth of Citrix-backed notes at a discounted price of about 83.6 cents on the dollar for a 10 percent yield. Another $4.55 billion in loans were sold at 91 cents on the dollar, also yielding a 10 percent return. For the banks that agreed to lend to Citrix buyers before the Fed began tightening, the resulting losses were painful.

“​After a period of excess liquidity, when interest rates are rising so sharply, it bursts a bubble that has been forming somewhere,” said Bob Michele, head of JPMorgan Asset Management’s global fixed income, currency and commodities unit. “It’s happened every time, and that shows you the Fed has done its job.”

The Citrix deal captivated the market partly because of its size, but also because of the relatively small capital investment Elliott and Vista made to buy the enterprise software company. To support the gargantuan debt sale, Elliott contributed more than $2 billion in cash, while Vista merged its already leveraged Tibco software business, valued at more than $4 billion.

Banks were in such good spirits in January that they had little trouble getting risk managers to sign the huge deal they had to sign. Citrix’s high level of gearing has become increasingly costly, with some dealmakers privately concerned that rising interest costs could absorb most of its cash flow.Citrix is ​​not alone. Among the deals giving Wall Street heartburn is Musk’s takeover of Twitter, a deal he plans to back out of. But unless a judge sides with the billionaire — or the board of the social media group agrees to end the deal — a group of seven banks that agreed to pay $13 billion in April to borrow for the takeover is still on the hook despite recent troubles at the company market downturn. It’s a deal investors believe would result in huge losses for the underwriters.

Bankers involved in the Citrix funding told the FT they were relieved they were able to close the $8.55 billion debt deal and that it didn’t fall apart. While they still hold around $6.45 billion in Citrix debt on their balance sheets — including some of the riskiest bonds they couldn’t sell — the fact that markets weren’t fully closed has given them hope that they will be able to sell more debt on their books.

But lackluster demand, including the banks’ failed attempt to sell Citrix subordinated debt over the summer, will still hurt Wall Street’s ability to originate new low-rated loans. The fact that some of the largest lenders in the US hold some of the riskiest debt could also worry regulators.

“It feels like even if the banks have closed the deal, there’s still a backlog,” said a top executive at a major lender.

Bank of America, Credit Suisse and Goldman Sachs declined to comment.

As banks shut down new business to clear troubled financing, frustrated private equity buyers have turned to direct lenders like Blackstone, Apollo and Ares, which have funded ambitious privatizations like Zendesk and Avalara this summer.

“The banks have basically gone on hold,” said the head of a large firm that buys syndicated bank debt. “Direct lenders are stepping into bigger deals and taking the business away from them.”