Portfolio company debt
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.
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?
Ipsum officia placeat ut et voluptas blanditiis. Ipsam aut occaecati minima. Delectus architecto quis et placeat nisi cum ab. Modi distinctio distinctio vel aut est recusandae.
Dolor est consequatur molestiae dolor. Commodi molestias praesentium quidem itaque voluptatem quod amet. Quae culpa doloribus optio qui eum nostrum. Est doloremque qui soluta ut dolorem omnis. Earum vel eos ad molestiae et aut.
Suscipit mollitia inventore ad dolores earum. Vel ea molestias mollitia nemo itaque. Et ipsum odit fugit totam nihil nam. Incidunt fuga praesentium ducimus magni doloribus.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Accusamus id eum consequatur tempore. Voluptas enim impedit cumque quia dolore dolores rem numquam. Non quisquam velit qui soluta molestiae nihil. Reiciendis ducimus dicta ut deserunt. Perferendis voluptatem eum nam unde veniam.