Private Equity Is Piling Debt on Itself Like Never Before
Some investors warn that buyout firms are borrowing at interest rates of as much as 19% and the risk of wider fallout is growing.
Sourcec: Bloomberg Creative
Private equity firms have been increasingly adding another layer of debt to their complex borrowing arrangements, raising concern among some investors about potential risks to the wider industry and the financial system.
Hit by a drought of deals and dwindling cash, some buyout firms are starting to resort to backroom financing to help meet fund commitments or enable succession planning. The loans — backed by assets including the promise of future income — carry interest of as much as 19%, a rate that's more akin to the charges faced by consumers rather than corporate borrowing. Even a junk-rated company in the US paid 10% on a bond recently.