A lot of PE firms I work with own the equity but also have a slug of the debt (I've seen both senior and hybrid). What's the idea behind issuing yourself debt? Is it part of the exit strategy or just to have a predetermined steady payout (interest)?
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at least in part in order to control some of the process in the event of bankruptcy
Creates current income as well as the potential for capital appreciation would be the major one, also gives a greater amount of control over portcos.
Take a look at windjammer for an example of a shop that does this really well.
Neither of the responses so far explain why a PE fund would be interested in the low-risk/low-reward returns involved in senior debt. Their investors don't pay them to put their money into senior loan placements.
There are firms out there that have an LBO fund and also have a mezzanine fund, both with distinct LPs and deal teams, that they can use to fund buyouts. ABRY is one that comes to mind... is this the kind of thing you're wondering about?
This!
Many diversified players have their LBO, Mezz, and Co-Invest funds that they sometimes utilize at the same time. And as said above they have distinct deal teams for each of the funds. For instance, AXA is one of the investors having their LBO + Mezz or LBO + Co-Invest funds in one single deal. I actually cannot remember a recent deal where GPs have been in plain-equity and plain-debt at once.
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