PRIVATE EQUITY FIRMS LOAD UP ON CHEAP DEBT TO BUY COMPANIES

Taking advantage of low-interest rates, private equity firms are taking on more and more debt to buy more and more companies.
BC Partners is borrowing $480 million to take over Women’s Care Florida, lifting its debt to nine times its earnings. Odyssey Investment Partners is shouldering $600 million in loans to buy Protective Industrial Products, leaving the company with seven times more debt than earnings. Clearlake Capital also is borrowing $600 million, using it to buy a division of software company nThrive.
Interest rates on such loans are now about 6 percent, drastically lower than the 13 percent leveraged loans often commanded when the world’s economies shut down last March, according to the Loan Syndication and Trading Association.
The buying frenzy “could see companies flip aggressively from” raising cash “and minding their balance sheets to buying aggressively to please their backers,” UBS credit analyst Matt Mish said to the Financial Times.
“That could sow seeds for more problems in credit markets,” he warned.
Meanwhile, a borrower-friendly credit market is expected to continue into 2021.
“We’re doing a ton of M&As,” John Gregory, chief of leveraged capital markets at Wells Fargo Securities, told the FT.
TRENDPOST: We note this article to again affirm that the Bigs will get bigger, small businesses will continue to shrink, the rich will get richer, and, in turn, median household income will decline, thus pushing down GDP growth, 70 percent of which is consumer-driven.