S&P Says Private Equity Damages Credit Quality

Mar 1 2007 | 12:00pm ET

In a report sure to provide new ammunition to private equity opponents, Standard & Poor’s says p.e. activity has contributed to the decline in credit quality in Europe and globally.

With leverage levels in Europe up to 5.4 times corporate profits from 4.3 times in 2003, S&P wrote, “the advent of private equity sponsors in the past three years introduces new risks for European ratings.”

The report shows that the share of junk-rated companies in Europe has skyrocketed in the past 15 years, up more than fourteen-fold to 17.2% in 2006. That’s also more than three times higher than just 10 years ago. In the U.S., the number is over 50%.

“Companies within this group are potentially undermining their credit quality through the use of dividend recapitalization plans to boost returns and quickly recoup their initial investment in sponsored companies,” the report said.

Also troubling, according to the report, is that speculative-grade companies have sunk deeper into junk, with the global  share of single-B rated companies—two grades below the highest junk rating, triple-B—is at an 11-year high, remaining above 50% in both of the last two years.


In Depth

Steinbrugge: Top 10 Hedge Fund Industry Trends for 2017

Jan 3 2017 | 9:03pm ET

Each year, Agecroft Partners' Don Steinbrugge predicts the top hedge fund industry...

Lifestyle

'Tis the Season: Wall Street Holiday Parties Back In Fashion

Dec 22 2016 | 9:23pm ET

Spending on Wall Street holiday parties has largely returned to pre-2008 levels...

Guest Contributor

DarcMatter: The Top Trends in Alternative Investments for 2017

Jan 13 2017 | 8:22pm ET

The $7 trillion alternative investments industry is poised for continued growth...

 

From the current issue of

The U.S. Commodity Futures Trading Commission (CFTC) ordered The Goldman Sachs Group Inc., and Goldman, Sachs & Co. to pay a $120 million penalty for attempted manipulation and false reporting of ISDAFIX Benchmark Rates, a global benchmark for interest rate products.