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PE-Backed Companies Susceptible To Default
S&P issued a report detailing that companies with exposure to private equity have dominated default activity this year.
November 20, 2008
Whether private equity is the victim or source of distress might be up for debate, but according to a recent analysis of defaults by Standard & Poor’s, the asset class is “swirling at the eye of the storm” in the current credit crisis.
The S&P report stated that through Nov. 17, there were 86 defaults globally totaling $285 billion, up substantially from 22 in 2007 and 30 in 2006. Private equity-backed companies accounted for a full 62% of all the defaults tallied by S&P this year.
“The slowing economy continues to strain earnings and the frozen lending markets pose operational risks and put vital capital projects in jeopardy,” the report, authored by S&P managing director Diane Vazza, summarized. “Sponsors now face more demanding investors, less accommodative market conditions, and the typical exit strategies … to which they once had access, no longer make much economic sense.”
In the past month alone, S&P cited defaults by VeraSun Energy, backed by Bluestem Capital Partners; Carlyle Group investment Hawaiian Telcom Communications; and American Media Inc., a former holding of JPMorgan Partners.
Madison Dearborn Partners, Apollo Management and Eos Partners were among those listed by Standard & Poor’s with links to more than one default.
To read IDD's interview with Vazza, click here.
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