PEU Buying into Distressed Debt

When the front door closes for leveraged buyouts, private equity underwriters (PEUs) head out back.  PEUs are after distressed debt, with refinancing looming and extremely difficult to obtain.

Bloomberg reported:

Carlyle Group LP, the Washington- based private-equity firm, is in talks to buy Highland Capital Management LP’s unit that manages $3 billion in collateralized loan obligations in Europe.

GSO Capital Partners LP, the debt unit of Blackstone, became the largest manager of CLOs in Europe after acquiring Dublin-based Harbourmaster Capital Management Ltd. in early October, tripling its European loans under management to 11.5 billion euros. 

SCI reported:

Euro CMBS refi warning
Limited availability of refinancing for maturing loans will be the key threat to the credit quality of outstanding CMBS transactions in 2012, according to Moody's. A significant gap exists between refinancing needs and available financing.

When markets become distressed, PEUs go shopping, but with whose money?

"Specifically, we foresee that investment through CLOs will consolidate significantly and that there will be a broader range of investors in the high yield asset class, including credit funds, insurance companies and pension funds."

Underfunded pensions need greater returns.  Greed, spread the poison.