LBO Loans May Follow Subprime Collapse

Discussion in 'Wall St. News' started by S2007S, Jul 6, 2007.

  1. S2007S


    Remember these highly leveraged buyouts can not go on forever.....low rates and plenty of liquidity can only last so long.

    LBO Loans May Follow Subprime Collapse, Moulton Says (Update1)

    By Edward Evans

    July 3 (Bloomberg) -- Loans to fund leveraged buyouts may dry up just like subprime mortgages in the U.S., according to Jon Moulton, the British venture capitalist who tried and failed to buy the carmaker MG Rover.

    ``It's near the top. There are some difficulties beginning to emerge in the debt markets,'' Moulton, who runs the private equity firm Alchemy Partners, told a meeting of the U.K. Parliament's Treasury committee today. ``At some stage no one will be willing to underwrite fresh debt.''

    Increasing mortgage defaults by borrowers with poor credit histories are causing investors to cut back on riskier assets. That may stem the flow of leveraged loans that buyout firms have used to fuel a record $607 billion of takeovers worldwide so far this year.

    The subprime market will serve as a ``prototype'' for a decline in lending because buyouts are financed through the leveraged loan market and collateralized debt obligations, Moulton said. `We will have the same sort of problems arising out of it because of over-enthusiastic markets.''

    The London-based buyout firms Permira Advisers LLP and Apax Partners Worldwide LLP today abandoned plans to sell New Look Group Plc after they failed to get the 1.8 billion pounds ($3.6 billion) they sought. The buyout firm BC Partners Ltd., as well as a partnership of TPG Inc. and New York-based Warburg Pincus LLC, were among the bidders.

    ``New Look may be the straw in the wind of people struggling to raise debt,'' Moulton said during today's 2 1/2-hour meeting.

    David Blitzer, who runs Blackstone Group LP's leveraged buyout team in Europe, disagreed with Moulton, saying leveraged buyout firms differed from subprime lenders because of the due diligence they carry out before buying a company.

    ``I don't believe there is excessive leverage in the system,'' Blitzer told the panel today. ``There's high liquidity but I don't believe there's systemic risk in the system.''

    The Treasury committee, led by John McFall, a member of Parliament from the ruling Labour Party, is questioning private equity dealmakers and labor unions as it prepares to publish a report into the industry later in the year. The panel includes members of Parliament from the U.K.'s two main opposition parties and is dominated by Labour lawmakers.