Saturday, May 30, 2009

PEU's and Annexation Funds

They were once known as leveraged buy out (LBO) firms. They've been rebranded "private equity" companies. I call them private equity underwriters or PEU's. The recent "LBO" hey day produced huge debt obligations. PEU's are restructuring many deals, getting lenders to write off principle and push out maturity dates. The WSJ reported:

They are issuing new debt to push back maturities on their existing loans. They are deleveraging through so-called exchange offers and debt repurchases. They are injecting more equity into deals to strengthen their balance sheets. Some are creating "annex funds" in which investors are asked to pony up more money to prop up ailing portfolio companies.

Unwinding excess leverage brings with it new words. What was a "capital call" is now an "annex fund". In either case, investors pony up new money or risk losing their prior investment. The opposite of annexation is secession. How many PEU investors would rather take their money and run?

Recall the Obama administration's $25 billion in stimulus love for private PEU's repurchasing debt. In the least, the big money boys pose a systemic risk to America's use of language. That's usually a bad sign. Ask your local con man, who can offer soaring rhetoric as he picks your pocket.