August 7, 2020
Private Equity: Portfolio Company Borrowers Driving Covid-19 Defaults
According to this recent “Institutional Investor” article, PE-backed firms have led the charge when it comes to Covid-19-related defaults on indebtedness – and things may just be getting started. Here’s an excerpt:
Private equity-backed companies are driving defaults in the Covid-19 recession, with companies owned by Blackstone Group, KKR & Co., and Apollo Global Management among those that have run into trouble, according to Moody’s Investors Service. More than half of companies that defaulted in the second quarter are owned by private equity firms, Moody’s said in a report this week. For example, Blackstone-backed Gavilan Resources and Apollo’s CEC Entertainment filed for bankruptcy, while KKR’s Envision Healthcare Corp. defaulted through a distressed debt exchange.
The article says that U.S. defaults have more than tripled since the end of the first quarter, and buyout debt has made PE-owned borrowers particularly vulnerable. The outlook for these borrowers is decidedly grim – with Moody’s expecting the default rate to 12% percent next year.
– John Jenkins