Agent bank Barclays is working with Russell Investments to negotiate with lenders on how to handle the asset manager’s 2025 debt maturities, said three sources familiar with the matter. A group of lenders to Russell has turned to Gibson Dunn for advice on the talks, added one of the sources and a fourth source familiar with the matter.

Russell’s earnings performance has suffered over recent quarters as it grapples with significant competitive pressures that have negatively impacted the fees that the company is able to charge clients and its assets under management (AUM) flows, said two of the sources. Still, the group’s enterprise value just covers its debt, the sources said.

The fund manager, backed by sponsor TA Associates since 2016, has been utilizing balance sheet cash to buy back a portion of its debt at a discount but has insufficient cash to cover its full maturities, one of the sources continued.

To facilitate a refinancing, Russell may need to secure consent from lenders to extend the 2025 first-lien term loan, the two sources said. Lenders may want to see Russell pay down the debt in exchange for agreeing to an extension, which could require TA to provide additional equity, one of the sources added.

In the case of industry peer Resolute Investment Managers, sponsor Kelso & Co was under pressure last year to address a loan maturity wall starting in 2024 amid the portfolio company’s deteriorating operating performance.

After months of negotiations, Kelso ended up handing over the keys to the asset manager’s lenders with the first-lien lenders receiving 86.5% of the equity in the reorganized asset manager, while the second-lien lenders received 13.5% of the organized equity, as reported. Through the restructuring, Resolute reduced its total debt by USD 274m or 44% and extended the maturity on its remaining debt by about three years.

Investors believe that the dynamic with Russell Investments is unlike that of Resolute and further point out that Russell has a much cleaner all-first lien capital structure, the two other sources said.

Moody’s downgraded Russell a notch to B1 in September, citing Russell’s elevated leverage amid lacklustre operating earnings. The ratings agency noted that Russell’s EBITDA dropped 34% year-over-year on a last twelve months basis as of June 30, 2023, reflecting the lagged impact of weak financial market performance in 2022 on AUM and investment management and customized portfolio solutions revenue and continued net outflows. These factors have driven the company’s leverage up to 7.5x as of 30 June 2023 from 5.9x at year-end 2022.

The decline in Russell’s operating earnings has raised refinancing risk on its USD 1.2bn term loan due in May 2025, Moody’s noted.

The London Stock Exchange Group closed a deal in 2016 to sell Russell Investments to TA Associates for USD 1.15bn in a transaction that saw the exchange hold onto Russell’s index business. TA utilized a USD 650m term loan via Barclays to fund the carveout that had to be reworked after attracting opposition from lenders. Russell has since boosted the size of the loan to fund dividend payments to shareholders.

The borrower’s USD 1.27bn senior secured first lien TLB due May 2025, which was repriced upward to L+ 350bps in 2021, was last quoted at 93.65/94.71, in line with recent trading levels, according to Markit. Its USD 75m senior secured revolver due February 2025 was last quoted at 90.52/91.58.

Russell managed USD 292bn in assets as of the end of September, according to the company.

Representatives of Russell, TA Associates and Gibson Dunn did not respond to requests for comment. Barclays declined to comment.