Bloomberg reported:
Almost overnight, a $693 million loan Clover Technologies took to the market five years ago lost about a third of its value. The startling nosedive stung even sophisticated investors, people who deal in the arcane business of trading corporate loans.This is the shark pool for the greed and leverage boys, private equity underwriters (PEU). Golden Gate Capital is the PEU behind Clover Technologies. It plucked nearly $300 million in dividends in 2013-2014, all of it debt funded. Golden Gate's profits placed Clover at risk for the slightest of financial shocks. Clover lost two customers and that disclosure drove down pricing on the term loan.
It immediately became a real life example of the perils of investing these days in the $1.3 trillion market for leveraged loans, where a global chase for yield has allowed an explosion in borrowing and lax underwriting.
“Highly levered companies are even more sensitive to reductions in revenue,’’ said Reynertson. “Cash flows can evaporate overnight.”Private equity affiliates number in the thousands. Many fit the description below:
Its debt is just over 6 times its earnings, a level that typically raises lender concerns about the company’s ability to meet its financial obligations.Clover Technologies was unlucky enough to be purchased by the PEU boys and saddled with sponsor enriching debt.
“When selecting a capital partner, it was critical for us to find one that deeply understood our business. Golden Gate Capital’s exceptional industry expertise was evident from our very first meeting. Without question, the strong partnership we have developed has been crucial to the growth and diversification of our business. Golden Gate shares our vision for the company and has empowered us to execute the strategy and drive results.” -- Jim Cerkleski, CEO, Clover Holdings, Inc.Driven to debt distress? Who's next?
