Private Equity Increasing Investments In Leveraged Loans

Posted by Bull Bear Trader | 8/11/2008 03:29:00 PM | | 0 comments »

As discussed a few days ago, private equity firms are looking to take advantage of the recent sell-off in the banking sector by investing in beaten down banks trading at cheap valuations (see previous post). These same firms are also looking for ways around regulatory requirements that limit how large their stake can be in these banks. Now the Financial Times is reporting that private equity firms are also increasing their exposure to leveraged buy-out debt, purchasing the debt at discount rates. It is normal for these firms to take on leveraged debt as they purchase companies, but the recent credit issues have made it difficult to borrow enough using traditionally means in order to do such deals. As an alternative, firms are now buying loans at prices near 80 cents on the dollar and using the debt to help finance current deals. While the private equity industry as a whole may not be picking a bottom in the banks, recent moves indicate that they certainly appear to like current valuations and the discounts they are receiving.