Private Equity/Entrepreneurship

Thomas M. Benninger of Global Leveraged Capital sees the equity market as a potential route for overleveraged companies to strengthe their balance sheet. Unlike in other crises, equity markets are quite ok now.

NYT: Private Equity: Another View: Debt Exploding? It’s Hopeless December 2, 2009

"Creditors need to force deleveraging. They need to be more pro-active about protecting their investment by exchanging their debt for equity, be it in or out of bankruptcy court. Simply extending maturities and taking back hope notes just allows a debt-laden company to stumble on for a few more quarters or years, while starving it of the capital needed for investment and recovery. Many lenders will likely see their hope notes wither and die in the harsher climate of economic reality.

Corporate issuers can voluntarily deleverage. The recently buoyant stock market provides an opportunity that historically hasn’t been available during periods of leverage hangovers. The strong shadow backlog of initial public offerings scheduled over the next quarter may portend a coming deleveraging by some operationally sound but overleveraged companies.

There’s a reason that experienced private equity shops like the Blackstone Group and Kohlberg Kravis Roberts have announced plans to publicly float some of their portfolio companies. They likely realize that equity markets are at least fairly valued, and they can deleverage some of their leveraged buyouts at attractive equity multiples. Prudent managements should avail themselves of today’s strong equity markets and get while the getting is good."

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