“HEDGING FAILURE EXPOSES PRIVATE
EQUITY TO INTEREST-RATE SURGE
“They’re the gilded class of high finance, whose shrewd bets and jumbo-sized paydays are the envy of Wall Street.
“Yet for all their savvy dealmaking, even the titans of private equity are getting caught out by the swift rise in interest rates—which is costing the companies they own billions inextra interest and threatens to push scores of them into default. . . .
“By failing to appreciate just how much central banks would jack up rates, many private equity firms opted against hedging arrangements that could have shielded companies saddled with $3 trillion in floating-rate debt from rising interest costs . . .
“Estimates are hotly debated and buyout firms across the industry declined to talk specifics. But in the US, nearly three-quarters of the floating-rate debt taken out during the leveraged-buyout boom lacked hedges as recently as August, according to an analysis by Bank of America.” [Emphasis added.]
Geniuses, I tell you! I mean, how were they supposed to know that interest rates go up sometimes?
Wall Street wizards forget the basics
By Thomas K. Brown,
SWIMMING NAKED: I won’t deny it. This has my schadenfreude-o-meter clanging at triple cowbell.
“HEDGING FAILURE EXPOSES PRIVATE
EQUITY TO INTEREST-RATE SURGE
“They’re the gilded class of high finance, whose shrewd bets and jumbo-sized paydays are the envy of Wall Street.
“Yet for all their savvy dealmaking, even the titans of private equity are getting caught out by the swift rise in interest rates—which is costing the companies they own billions in extra interest and threatens to push scores of them into default. . . .
“By failing to appreciate just how much central banks would jack up rates, many private equity firms opted against hedging arrangements that could have shielded companies saddled with $3 trillion in floating-rate debt from rising interest costs . . .
“Estimates are hotly debated and buyout firms across the industry declined to talk specifics. But in the US, nearly three-quarters of the floating-rate debt taken out during the leveraged-buyout boom lacked hedges as recently as August, according to an analysis by Bank of America.” [Emphasis added.]
Geniuses, I tell you! I mean, how were they supposed to know that interest rates go up sometimes?