Already a subscriber?Private equity manager and former Macquarie phenom Ben Brazil has warned that a wave of highly indebted unlisted companies will be unable to refinance their loans, unleashing a barrage of distressed assets and a buyers’ market for investors looking to turn a profit.
”Those investments were predicated on loose credit and when that tide goes out and the credit retracts, those investments will really get caught out.” Mr Brazil said the banking system is in better shape than it was when CAF went on its investing spree, which spanned almost a decade and was spread over 500 individual positions. But debt markets have grown in stature and complexity since then.
“Transaction activity has reduced enormously because those historic purchase prices were too high. The credit has slowed transactions down, which has reduced inflows back to limited partners,” said Mr Brazil, referring to private equity investors., who say private equity funds are being forced to use more capital and less debt to do deals, but are baulking at the offers they’re getting when trying to sell assets.
“There is a bifurcation between those borrowers that are eminently healthy, versus those where there is a genuine question mark as to whether their debt levels are sustainable,” he said.“They really can’t access credit, and certainly not on the terms that justify historic purchase prices,” Mr Brazil said.