, of significant concern should be that below investment grade companies, whether backed by private equity or not, have taken on significant debt to increase shareholder payments. Also, of importance is that the majority of leveraged loans that were taken out in the first half of this year are for leveraged buyouts.
at a time that we are already in an economic slowdown in the U.S. and the rest of the globe. Laid off workers who may not be able to find a job become taxpayers’ responsibility through unemployment benefits, food stamps, and other government programs. To my knowledge, I do not know of private equity retraining programs or benefits programs to help laid off workers pay for food and housing costs.
Data compiled by Buyouts Insider shows that the highest percent of distressed rated companies are in consumer products/services, and industrials, followed by high tech and retail. Importantly, this data only includes rated companies; the credit quality of non-rated private equity backed companies is much more challenging to ascertain, since those companies are not required to release their financial statements to the public.
This number of distress rated private equity companies, not to mention defaulted ones, should have all of us worried. These distress ratings and defaults are happening when we are still in an economic period where gross domestic product is growing, albeit at a slower rate. As we enter a recession, the likelihood of downgrades and defaults is likely to rise significantly.
Note: Recently, I have devoted a significant amount of time researching and writing about private equity’s investments in