2009, a Year of False Alarms for Private Equity

10 December 2009

After the September 2008, no one knew what to expect in the upcoming week, let alone the next month or year. That uncertainty led to a lot of freaking out over nothing this year, and private equity had its fair share of false alarms. Here are five “trends” that had buyout barons shaking in their boots, but ended up being no big deal at all. (Literally! Get it? There were no big deals? Anywaaaaays…)

[slideshow]

[slide title=”LP Defaults”]

Everyone was panicking, but only in the rarest instances did LPs miss capital calls. “While there was tremendous dialogue about how to handle a rash of investor defaults, while very few of them actually came to be. As sponsors slowed down their investment pace, investors had a chance to work out their liquidity problems to avoid defaults,” said Laura Friedrich, partner at Shearman & Sterling’s asset management group.

[slide title = “Wall of Debt Maturities/Bankruptcies” ]

We coined all kinds of new catchphrases to describe the ways buyout firms have pushed back looking maturities on the massive amounts of debt on their portfolios. Aside from the standard distressed debt exchange, there’s “Amend, Extend and Pretend,” and of course, “kicking the can down the road.” Whatever you want to call it, lenders and PE barons found ways to patch over even the most highly levered messes. And while the PE-backed bankruptcy list has certainly topped its 2008 levels, it’s not going to double year-over-year, as many predicted.

[slide title = “Secondary Market Trumps Primary Fundraising Market” ]

Oh, secondaries. They held so much promise. But like anything the market views as “hot,” it has to fizzle sometimes. In the case of the secondary market, it never even reached a boil. Pricing in the secondary market has remained unattractive to buyers, and its only getting more expensive, meaning secondary deal action may never heat up to the levels it was expected to. Which has led to a fizzling of fundraising for secondaries, too. Of the six largest secondary funds in the market at the beginning of this year, only two have closed. So while the primary market fundraising market remains ice cold, it’s not because secondaries are sopping up all the commitments.

[slide title = “PE Mergers” ]

I thought this was a bad idea from the start, but that didn’t stop lots of speculation over BCG’s ridiculous report that 40% of all buyout firms would go away, and about US mega-firms buying some troubled European firms. No surprise, it hasn’t happened.

[slide title = “PE Bank Deals” ]

Were buyout firms ever jazzed to buy banks or what? We must have written 100 stories on the topic once the spectre of loosened rules came on the table. That was back in the summer, before Sheila Bair and the FDIC announced its so-called “loosened” rules, which included preventatively stringent capital requirements. Once Sheila Bair and crew finalized its rules in August, the excitement died and with it, many a bank deal. In fact, I don’t know that we’ve seen another buyout firm buy a large bank since the rules, which favor strategic buyers, were put into place. That leaves Corus (TPG) and BankUnited (Carlyle, Wilbur Ross) to carry the PE-backed bank cross.