Debt linked to huge buyouts is tightening the vise
Andrew Ross Sorkin and Michael J. De La Merced
The International Herald Tribune
November 3, 2008
Private equity firms embarked on one of the biggest spending sprees in corporate history for nearly three years, using borrowed money to gobble up huge swaths of industries and some of the biggest names — Neiman Marcus, Metro-Goldwyn-Mayer and Toys “R” Us.
- A d v e r t i s e m e n t
The new owners then saddled the companies with the billions of dollars of debt used to buy them. But now many of the loans and bonds sold to finance the deals are about to come due at the worst possible time.
So, like homeowners with an adjustable rate mortgage that just went up, some of private equity’s titans are facing a huge squeeze. And that is coming at the same time consumers are staying home with their wallets closed.
Already this year, big retailers backed by private equity, like Linens ‘n Things, Mervyn’s and Steve & Barry’s, have filed for bankruptcy.
Analysts expect an even broader array of companies backed by private equity — including resorts like Harrah’s Entertainment and lenders like GMAC, the financing arm of General Motors — to face even more pressure as profits shrivel and creditors come knocking.
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