LBO Outlook Is Bleak From Davos

Jan 23 2008 | 12:11pm ET

These are anxious times for private equity executives on the ski slopes of Davos, Switzerland.

A pair of high-profile buyout chiefs warned that the subprime mortgage market collapse and ensuing credit crunch will make it hard to finance big deals in 2008.

“Today, a pure buyout of $40 billion to $50 billion is not likely because the debt markets aren’t there,” Carlyle Group founder David Rubenstein told Bloomberg News at the World Economic Forum. “2008 will be a slower time to do larger buyouts.”

That’s because banks have a huge backlog of unsyndicated loans they need to “purge” before funding new leveraged buyout deals, according to John Snow, chairman of Cerberus Capital Management. Banks need to sell some $200 billion worth of existing loans before the pace of LBOs will approach last year’s record levels.

“The whole market for transactions has slowed down some and will continue to slow down until the big thaw takes place,” the former U.S. Treasury secretary said. “We are seeing a slight thawing but credit markets are still tight. There’s a lot of paper still not priced yet.”

Rubenstein indicated that Carlyle would focus on making minority investments, acquisitions in emerging markets, other asset managers—expecially hedge funds and real estate managers—and “artificially depressed” sectors of the economy while the credit crunch stymies bigger moves.

“Financial services companies are particularly beaten down, and they’ll probably see a lot of private equity activity,” he said.

Rubenstein also held out the prospect that p.e. firms will seek to go around the big banks, looking to sovereign wealth funds to pick up the slack.

“Sovereign wealth funds have enormous amounts of money, they buy fixed-income instruments as well as equity, and it's quite possible they can provide debt for some of these large buyouts if they chose to do so,” he said.

 


In Depth

JOBS Act Propels Real-Estate Crowdfunding Platform

Oct 21 2014 | 2:57am ET

If D.J. Paul were a real estate development, he would be described as “multi-use...

Lifestyle

Balyasny Pays Over $6M For Lakefront House

Oct 22 2014 | 10:29am ET

A venture headed by hedge fund manager Dmitry Balyasny just paid $6.2 million for...

Guest Contributor

Hedge Funds Weather A Data Management Perfect Storm

Oct 22 2014 | 12:28pm ET

From a regulatory standpoint, nearly every development since the crisis has placed...

 

Videos

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

October 2014 Cover

Deeply flawed risk benchmark

Most traders agree that proper risk management is the key to successful trading. However, many traders depend on the deeply flawed measure of standard deviation as a benchmark of risk. Here we put it ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.