Sunday, June 1, 2014

Unable to Resist PEUrges

Bloomberg reported how private equity is once again gaming debt in their search for returns:

Lenders are increasingly allowing junk-rated borrowers to adjust their earnings to make them look more creditworthy as U.S. regulators increase pressure on banks to refrain from underwriting too-risky deals.

Such tweaks, which are permissible under more and more credit agreements, can help companies stay in compliance with their loan terms or to raise debt. 

More than half of loans this year for issuers backed by private-equity firms allow them to boost earnings by an unlimited amount through projected cost savings from acquisitions and “any other action contemplated by the borrower.”

This brings back the image of Carlyle co-founder comparing easy debt terms to sex.  The urge was there and he couldn't resist.  Those days are back in spades.