Do PE funds ever guarantee the debt of their portfolio companies? It seems it would defeat the whole purpose of limited liability, but I heard anecdotally that this does in fact happen. Why would a fund ever agree to do this? the only reason I can think of is if they’re trying to refi debt of a distressed company.
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try being a bond holder to a BX portco and ask for a guarantee....do you think they will give you that?
I suppose that BX might not need to, but how about smaller players?
No, they do not.
Let's say you have a $1bn fund. You want to write 9 $100M equity checks, and leave $100M on the side for add on acquisitions, equity cures etc. How could you guarantee the $900M of debt (assuming 50% debt : equity for simplicity) with your $100M? You'd end up needing to have something like 50% of your fund reserved for the guarantee, which of course is unfeasible for LPs.
consider the scenario where a $3b fund guarantees a $80m debt at portco. didn’t say it was all the debt, just some.
PE firms don't guarantee the debt of the entire portfolio, but at least in the LMM/MM they might guarantee the debt of a single company given challenging circumstances, various protections for the PE firm, expiration timing of the guarantee, etc. Sometimes they just guarantee the amount drawn on a revolver. We don't like to but sometimes its the only way (or the fastest way) to get something done. Usually have to reserve capital in your uncalled commitment to do so, so also depends on how much/what part of the fund lifecycle you're in.
that’s helpful. thanks. so fair to say you would never guarantee all the debt on an LBO?
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