Also remember that if they go bankrupt (depending on which form and where) equity owners can get zeroed out - and then a company with the same name but new shareholders can do the comeback without the earlier shareholders.
He can say that all he wants but he bought banks at the bottom in 2008. He sold out of airlines now to better position himself for his next big purchase. He sold $1.8B in bonds now at a low rate to have cash to purchase. He’s positioning himself for a payday.
www.visualcapitalist.com
www.visualcapitalist.com
Not sure that "sitting on the sidelines" is the proper way to think about it. PE has "dry powder", but its not like money in a savings account. It is callable capital. Investors have invested that money in something else more liquid. If a PE firm did a capital call, the institutional investor would need to sell something (public equities, bonds, etc) in order to send the money. I'm not sure how that would impact the Fed's calculation, if it would at all. It is just moving money from one "pocket" of the economy to another. Typically in these periods, PE activity tends to get locked up. Private debt funds might be more active, but some of the government programs will help. No one wants to borrow at 20% to stay afloat or sell an equity stake at an huge perceived discount. I certainly could be wrong, but the delay in information in that space makes it hard to see anything. I heard a lot of the early-stage firms drew from their credit lines very early. Maybe today's news on reopening plan will help determine what the future will look like.
Thanks for taking the time to respond. Makes perfect sense.
Good read. A little technical for this forum The author uses the term "liquidity" in a way I wouldn't. They mean cash to fund operations, as in "My business model went to shit and I need liquidity to stay afloat". These companies drew on their credit lines. Those leverage loans (bank loans) are immediately senior to everything else in the capital structure. A new lender would have to come in at a junior level/lien (which the author suggests the Fed/Government should do). Back to my original description, if the business model is bad, being in a junior lien is a bad idea. So maybe the question for the Private Debt market is how to prop up these companies and hope there is another sucker that will refinance the debt in 12 months when we get back to something that resembles normalcy. I think you are correct in assuming they will try, because they get paid to call capital and make those loans and investors are legally obligated to fund the capital call. The result may not be great though, because the EBITDA valuations were mostly BS to begin with and adding more debt on the balance sheet doesn't help. I wouldn't touch a small-mid energy company. Those are DOA. But I guarantee I can give you names of PE/PD companies you could call to take your money and they will give you a great sales pitch on how this is a once-in-a-lifetime opportunity.Thanks for taking the time to respond. Makes perfect sense.
I should framed my question better, because honestly what I wrote didn't articulate what I was thinking well at all.
My thinking as been that we came into this situation with a large percentage of companies balance sheets overly leveraged. Traditional credit markets may not be able to fill that void and add the amount liquidity these companies will need in this current situation. I have to think think that feds policy is designed to move that "sidelined " money into the credit market. "
Here is an article that explains it better then I can.
Managing the Liquidity Crisis
Companies are scrambling for cash in the wake of the pandemic. Unfortunately, for structural reasons they are unlikely to get the cash they need from their traditional lenders, even though the financial system is in relatively good shape and there are reserves of cash that could potentially be...www.google.com
Not sure. We all know a lot of businesses are going to go under. But printing a ton of money is the only reason this is happening in the market. It is Madness. At least Hertz is up 21% TODAY
