Tuesday, May 22, 2018

Leverage Up to 7x in PEU Deals

Bloomberg reported:

Debt in leveraged buyouts is creeping above the six times level that regulators said in 2013 was potentially too risky, after commitments to private equity deals scorched banks during and after the crisis. The average company in an LBO had borrowings equal to 6.4 times earnings before interest, taxes depreciation and amortization in 2018, according to Fitch Ratings. Last year it was 6.2 times Ebitda and in 2016, it was 5.9 times.

Federal Reserve Chairman Jerome Powell, separately said that the guidelines they offered before, including the six times level, were just guidance, and not hard-and-fast rules.

Leverage above seven times is somewhat of a recent phenomenon.” In certain cases, like if a company is strong, there may be room for that much leverage, he added.
Frothiness up, thanks to non-economist and ex-Carlyle Group partner Jerome Powell,  now Fed Chair.