Wednesday, March 1, 2023

Two Stories on PEU Junk


Private equity firms are increasingly financing each other's deals, according to Bloomberg.  

...Apollo Global Management Inc., Blackstone Inc., HPS Investment Partners and Ares Management Corp. Direct lenders, already among the largest players in leveraged buyout financing, see an extraordinary opening to grab market share — and hang onto it for the long haul.

The four are among the shops offering $5.5 billion to fund Carlyle Group Inc.’s purchase of a 50% stake in Cotiviti Inc., according to people familiar with the matter.

Will they refinance each other's affiliates when their debt comes due?  Dividend recaps are back in vogue.

Private equity firms are using some of their companies as automated teller machines again.  The firms are piling more debt onto companies they own to fund payouts to themselves.

It may be the only way to keep "mark to fantasy" valuations from imploding.   

Update:  Oaktree entered the "I'll fund yours if you'll fund mine" with a new $10 billion PEU lending fund.

Update 3-20-23:  WSJ reported some public pension funds are cutting back on private equity investments.

Update 4-12-23:  Carlyle's deal for Cotiviti fell apart.  FT reported "late in the process Carlyle tried to reduce the purchase price.."  Maybe "I'll fund your junk, if you fund mine" isn't in play at all.