Debt risk rising in private equity
The credit that is fuelling leveraged buyouts and other private equity deals may become tomorrow's problem, according to a recent post by Bob Eisenbach. The US Bankruptcy lawyer draws on articles in the Financial Times and the Guardian (courtesy of a New York Times blog).
Sub-prime mortgage lenders are suffering in the US just now and commentators are drawing parallels to suggest that lax credit standards in the corporate arena could magnify default rates in an economic downturn. The problems will be exacerbated by investors who have chased returns and moved towards more illiquid hedge and buyout funds.
Do you agree? Are you seeing rising default rates? Send us your comments.
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It's interesting that the NYT blog, DealBook, had a similar view a month ago "Stocking Up For A Storm". Thanks again to Bob Eisenbach: New Article On How Distressed Debt Investors Are Preparing For The Next Economic Downturn.
This may well be tomorrow's problem, but it's certainly not today's. Default rates are still stubbornly low - and the current wall of money means that anything capable of it is still being re-financed.