Equity Firms Buying Debt

Buyouts Magazine is reporting that Providence Equity Partners plans to use a portion of its $12 billion fund to acquire loans and debt securities issued by media companies. In similar news, peHUB has learned that Leonard Green & Partners is doing the same thing, albeit not via the special purpose vehicle strategy that Providence is apparently using.

Leonard Green managing partner Jon Sokoloff says that the move is born of opportunity, and buttressed by the firm’s prior banking experience with DLJ. He did acknowledge, however, that the whole plan could get scotched if credit markets are revived by the Fed’s anticipated interest rate cut.

LPs are generally consulted on such strategy shifts, but their ascent is not always required (varies from fund to fund). They also seem fairly mixed on such proposals. Some have expressed gratitude that their money will be invested in something, rather than just collecting dust and management fees (as no one expects LBO firms to follow the 2001/2002 VC practice of fund size cuts).

But some LPs are nervous. One described it to me this way: “Imagine I’ve got a very good plumber, who I call in to fix some pipes. He tells me that he could also run a pipe directly from Alaska into my home. He knows how to do piping within the home, but what this is a very different proposition. Not sure I’d be so comfortable with it.”