It is necessary to save private equity underwriters to keep public pension systems from taking huge losses. That's the rationale for the Fed's Jay Powell and Randall Quarles to buy junk bonds with highly levered public money. Both Powell and Quarles are former Carlyle Group executives.
The move didn't come in time to save Carlyle affiliate Apex Parks, which declared bankruptcy. Fellow PEU and Apex debt holder Cerberus Capital Management will take over Apex.
But the Fed's new program could help Neptune Energy, just downgraded by Fitch to BB.
Look for the Fed's cash to fly to junk bonds as a way of saving PEUs. Politicians Red and Blue love PEU.
Update 4-10-20: Moody's downgraded or changed sentiment to negative for four Carlyle affiliates: Atotech, KL Discovery and International Design Group. It placed Dynasty Acquistion/Standard Aero under review for downgrade. Carlyle pulled $500 million from Atotech in 2018. KL Discovery provides electronic-discovery
services to corporations and law firms. It's experiencing elevated leverage and tightening liquidity and could trigger debt covenants. International Design Group produces high end lighting and furniture in Europe. Moody's expects leverage to deteriorate to over 9.0 times EBITDA by year end..
Update 4-11-20: Short seller Jim Chanos is outraged private equity went to Uncle Sam with hands out.
Update 4-12-20: Billions for the big money boys, a pittance for the little guy. That's the American response.
Update 4-24-20: HuffPo reported "emergency lending programs the Fed has unveiled to date are not a rescue, but a license to steal. Nobody at the Fed or Congress has placed meaningful restrictions on how the largest corporations can use their bailout money. They can funnel it to shareholders in the form of stock buybacks or dividends. They can raise executive pay, approve massive bonuses for Wall Street traders, buy up smaller competitors ― all while laying off workers, slashing salaries, offshoring jobs or otherwise running amok as corporate citizens." This bodes well for the PEU boys.
Update 4-25-20: FT reported on the greed and leverage boys lining up for big public money as it will be the cheapest financing they can get. The Fed's buying junk bonds "revived the market for risky corporate debt — the bread and butter of
the private equity industry — helping financial institutions to avoid
mark-to-market losses."
Update 5-19-20: Wall Street on Parade picked up on the Carlyle connection to the top two Fed chiefs.
Update 5-28-20: S+P Global reported "London-based Neptune Energy announced Wednesday several delays to
upstream oil and natural gas projects it is involved in in the North
Sea, including with BP and Norway's Equinor, along with more spending
cuts intended to weather the fall in commodity markets." Neptune's Executive Chair said market turmoil would make the company cautious about acquisitions.
Update 6-7-23: Carlyle appears ready to monetize Neptune Energy for between $5 and $6 billion.
