Friday, May 12, 2023

PEU "Loan to Own" Era

Banks have no appetite to take over businesses that welsh on their loans.  Private equity gorges that very situation.  So the hot topic is banks partnering with private equity underwriters (PEU).

US private equity giant Blackstone is negotiating a role as a party in regional-bank loans, the firm’s president Jonathan Gray said in an interview with the Financial Times.

Blackstone would potentially provide banks with firepower to lend to companies as credit becomes more scarce. Blackstone could help move loans originated by regional banks to its insurance customers.

Uber wealthy family offices (many started by PEU founders) want in on private credit.  CNBC cited the opportunity for double digit returns due to high interest rates. 

Family offices love being opportunistic on dislocation.

Like their PEU brethren.  Both  are happy to loan to own.  Backdoor takeovers (debt cramdowns) are just fine.

PEU chess plays are occurring while searing critiques hit the press and bookstores.  Don't look to elected officials or regulators for protection.  

Politicians Red and Blue love PEU and increasingly, more are one.

Update 5-23-23:  Axios reported:

Over $100 billion of U.S. corporate debt trades at distressed levels.

Update 5-28-23:  Reuters said even their peers wouldn't fund this deal

Private equity firms Francisco Partners and TPG Inc (TPG.O) have ended talks to acquire New Relic Inc (NEWR.N) after they failed to secure enough debt financing and could not meet the business software company's valuation expectations

Update 6-29-23:  Federal Reserve Bank staff believe a financial catastrophe is on the way.  How many PEU affiliates will sink in the financial tsunami?  Thirty seven percent of companies are in trouble.

Update 8-10-23:  Bloomberg indicated loan to own era is cranking up.  The story stated:

Oftentimes, private equity owners would prefer to cut their losses than throw more money at an underperforming business.

Where does the PEU leave the door keys?