PE Exemption From Dodd-Frank Hearing Today

The House Financial Services Committee is set to discuss legislation today sponsored by Rep. Robert Hurt of Virginia that would exempt PE firms from Dodd-Frank. The hearing is at 2 p.m. So long as it’s streaming live, I’ll likely be live-Tweeting (whoa now! Don’t get too excited:@BVaughanReuters) . Here’s a description of the legislation from the FSC website:

The Small Business Capital Access and Job Preservation Act. The Financial Services Committee has received testimony regarding the role private equity firms play in preserving existing jobs and creating new ones by providing capital to struggling and growing companies. The Dodd-Frank Act requires most advisers to private investment funds to register with the SEC, including advisers to private equity funds. The Small Business Capital Access and Job Preservation Act exempts advisers to private equity funds from the registration requirements. The draft legislation will be sponsored by Representative Robert Hurt.

The FSC will discuss four other Dodd-Frank-related bills during the hearing.

Representing PE firms will be Pam Hendrickson, COO of The Riverside Company. As sister site Buyouts previously suggested, Hendrickson will discuss the firm’s investment in SunTek Holding Co., a company based in Hurt’s district that makes solar-control window films for cars and buildings under the name Commonwealth Laminating & Coating Inc. With Riverside’s help, the company boosted its production capacity, expanded its international presence, and expanded its product line, according to Riverside’s Web site.

Here’s an excerpt of Hendrickson’s prepared testimony, which Riverside provided to Buyouts. This goes to the industry’s argument that PE does not pose a systemic risk:

Even if the CLC investment had not been successful, Riverside would not have been forced to sell other assets into a down market to fund investor redemptions. The impact from a CLC bankruptcy would have been on only one loan. There could not have been a “run on the bank”—the type of scenario that drove Bear Stearns into liquidation. Certainly the bank that lent us the money to buy CLC could have lost money—but Standard & Poor’s data shows that the average gross leverage ratio for private equity-owned companies is about 4 to 1. Lehman Brothers, in the year before it went bankrupt, was leveraged at nearly 30 to 1, according to Lehman’s own internal analysis.

Bernard Vaughan is a Senior Editor at Buyouts Magazine. Follow his tweets @BVaughanReuters. Follow Buyouts tweets @Buyouts. For information on how to subscribe, contact Greg Winterton at greg.winterton@thomsonreuters.com.