Bloomberg reported on December 16, 2023:
Private equity giants are turning to a new take on an old solution to higher debt costs for M&A deals: borrow all of the money they can and defer paying it back.
A January 4, 2024 Bloomberg piece stated:
Private equity firms, eager to sell debt-laden businesses, are finding private credit firms increasingly willing to keep outstanding loans intact, even for companies that may soon have new owners.
Another Bloomberg story which also ran today offered:
Calstrs Seeks to Borrow More Than $30 Billion to Manage Cash
Calstrs could leverage 10% of portfolio under new policy
Adds to growing trend of pensions adopting riskier investments
The California State Teachers’ Retirement System, the country’s second-largest pension fund, may borrow more than $30 billion to help it maintain liquidity without having to sell assets at fire-sale prices, according to a new policy its investment committee will consider this month.
Calstrs already leverages 4% of its portfolio, and the new policy would not create a new asset allocation policy. Instead leverage would be used to smooth cash flow and as an “intermittent tool” to manage the portfolio.
A wise friend refers to these acts as "extend and pretend." He recently wrote:
This is an extension of extend and pretend for the private equity boys whereby the settlement of prices in this sphere will be pushed out further with customer money/ portfolios. This is another joke where they scrape fees at everyone else's expense.That was the game plan after the 2008 Great Financial Crisis. The moves get crazier and crazier for those who love money.
I close with a B-52's Love Shack rewrite:
Everybody's extendin', everybody's pretendin' Folks linin' up hoping not to write downEverybody's extending', everybody's pretendin'PEUnky little shackPEUnky little shack
The Love Shack video shows one sphincter moment, something the PEU boys are currently experiencing.
How long can they hold on?
Update 1-8-24: Bloomberg did two PEU stories, one titled:
Private Equity’s Horrible, No-Good ’23 Set to Continue Into ’24
The other:
Private US Companies Increasingly Going Bust as Profit ShrinksNot all private companies are PEU affiliates, but many are and PEU strategie, (high leverage levels, management fees and cash bleeding) place affiliates in a more precarious financial position.
