Interim CEO & CFO, Supply Chain & Operations Director. Restructuring / Turnaround / Transformation / Integration / Business Development.
https://lnkd.in/enzhY5mS DEALS OF LEVERAGE BUYOUT UNDER MOUNTING PRESSURE. As indicated in the article’s headline, struggling corporate borrowers turn to the private credit market to defer interest and get flexibility amid the stress caused by more costly financing and a slowing economy. During the last week, the pressure has mounted, and higher rates have spread to all credit markets, led by a sell-off in global bond markets and pushing borrowing costs to their higher levels in the last decade or so. As a result, those with large exposure to bonds, such as banks, insurers, pension funds, and asset managers, have raised their unrealized losses, increasing the risk of losses if they have to settle their bond holdings before maturity. That happened with the fall of Silicon Valley Bank in the United States and the collapse of the Pension Funds in the United Kingdom around one year ago. Higher interest rates are especially detrimental for the Private Equities and their leveraged buyout portfolio companies, as the leverage part becomes more expensive. Due to the rising cost of debt, leveraged buyout deals have already declined during the year, and the interest coverage ratio of the Private Equities and their portfolio companies, which measure the ability of companies to pay their debts with their operating profits, has substantially dropped. The prospect of interest rates remaining higher for a longer period, combined with the consequences of a slowing economy, are factors to be considered influential in the future activity of dealmaking leverage buyout transactions, as rising borrowing costs force Private Equity to finance new deals with their own funds, lowering their IRR, squeezing their dry powder, and losing appeal for future incoming fundraising. #leveragebuyout #interestrates #privateequities #portfoliocompanies