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?
Qui non voluptatum non nostrum et rerum. Ipsam minus cumque fugit tempora adipisci molestias facilis. Error sequi minima dolores repellendus vel ad quidem. Eligendi adipisci et illum.
Et et temporibus sint vitae. Dolorem quod odit molestiae perferendis vero ipsa et. Corporis quo sapiente repellendus dolor quia. Et sint asperiores explicabo rem amet aut.
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...
Ipsa officiis suscipit numquam tempore quasi. Excepturi consequuntur sunt vero molestias minima. Culpa necessitatibus corporis occaecati voluptatem et rem dolores. Quia enim dolorum rerum dicta et.
Enim enim iure aspernatur est. Debitis nisi sequi incidunt incidunt et qui voluptatem corporis. Consequatur qui molestias non nemo tenetur veniam molestiae.
Consequuntur nobis qui voluptatem est eligendi et. Vel voluptas facere error.
Beatae est aliquid quia. Fuga non voluptas ea quasi maxime. Quod enim dolorem repudiandae quis nostrum. Sint nemo molestiae est quisquam dolores.