There are many businesses that will suffer and potentially face bankruptcy due to the coronavirus pandemic. One of the industries that will suffer, apart from airlines and cruise lines, is private equity. This however is something I have been warning about for over a year. The levels and multiples of debt were never sustainable..... Aivars Lode
Private-equity shops are everywhere—from fast-food restaurants and hotels to hospitals and even the dentist—and often their investments are financed using a lot of debt, sometimes as much as 70%.
Private-equity shops are everywhere—from fast-food restaurants and hotels to hospitals and even the dentist—and often their investments are financed using a lot of debt, sometimes as much as 70%.
Bill Ackman, head of hedge fund firm Pershing Square Capital Management, warned this past week that private-equity firms might go bankrupt if the crisis lasts 18 months.
It’s not clear how much debt PE firms have piled onto their portfolio companies, but global PE groups collected $2 trillion from investors from 2006 to 2008, according to a Harvard Business School study that looked at the industry’s use of debt in the financial crisis. For each dollar of investment they raised, they typically borrowed $2 of debt, the study said.
If the current debt load comes close to or exceeds 2008 levels, there could be pain for PE firms and their portfolio companies.
By Luisa Beltran - Barrons
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