Skittish Banks Turn to Little-Used Financing Trick for Buyouts

Wall Street banks, stung by debt markets shutting down last month as trade wars escalated, are taking less risk in some of their efforts to win financing business for mergers and acquisitions.

Junk-rated companies and private equity firms have lined up about $17 billion of debt recently for purchases of everything from power plants to a chain of gas stations. But they are using an unusual tool for that financing: the 364-day bridge loan.

It’s a far cry from the standard financing for buyouts, where banks promise to provide financing for years, often with a cap on the interest rate ...