'Loan-To-Own': Buyout Firms Look To Bankruptcy Courts

While CFW has recently described how exits by private equity firms on the back of rallying equity markets will give a boon to the IPO market (witness the September 4 US$1.15bn filing by PE-backed oil exploration firm Cobalt International), the scope for conventional leveraged buyouts is still limited by curtailed bank lending. Figures from Bloomberg show that lending for highly leveraged takeovers (with a ratio of cash to debt of 1/3) is down 91% from 2007, reaching US$67.7bn this year compared to US$311.2bn in 2008. We have already highlighted the wide ranging effects this has had on the PE industry (see 'KKR And Apollo Look To Debt Investments', CFW, August 18 1009 and 'The Changing Face Of Private Equity', CFW, May 18 2009'), notably a shift toward the acquisition of debt and distressed-asset investments. Increasingly, however, PE majors are looking to make acquisitions within the bankruptcy courts, where with corporate defaults reaching record levels they are able to deploy some of the US$600bn they have in funds raised by providing capital in exchange for equity.

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