- As regulators have loosened restrictions, debt in leveraged buyouts is exceeding the 6x level that regulators had considered as too risky in 2013.
- Private equity firms benefit from adding on leverage because it reduces the amount of equity needed, which boosts returns as asset valuations increase, Bloomberg reports.
- So far this year, a company in an LBO, on average, has borrowings of 6.4x EBITDA in 2018, compared with 6.2x last year, and 5.9x in 2016, according to Fitch Ratings.
- Regulators have eased restrictions on individual deals this year, saying the 6x figure is a guideline, not a rule.
- Not only is there more debt, but the quality of the covenants, or safeguards, has also declined, Bloomberg says. “Deals have become much more flexible and aggressive which allow sponsors to add on more debt,” said Philip Lee, an analyst at Covenant Review. “It’s an issuer’s market.”
- Previously: Women earn 30% less at Blackstone (NYSE:BX)'s U.K. office (April 3)
- ETFs: PSP, PEX
Original article