Saturday, May 2, 2009

Chrysler Bankruptcy: End of "Dumb Money" Era for Private Equity

Chrysler's bankruptcy filing is a watershed moment for the U.S. auto industry but also harkens the end of an era for private equity too, says Daniel Gross, columnist at Slate and Newsweek and author of Dumb Money. Cerberus, which acquired 80.1% of Chrysler and its finance arm for $7.4 billion in May 2007, is just one of several high-profile private equity firms facing big losses on deal done in 2007-08.

Others include:

- Thomas Lee Partners and Bain Capital, which paid $18 billion and assumed $5 billion of Clear Channel Communications debt - and sued bankers to complete the deal - when it took the radio giant private last July. Clear Channel is now in danger of defaulting on its loans, The NY Times reports.

- Sam Zell, who paid $8.2 billion and assumed $5 billion of debt in Dec. 2007 when his firm acquired Tribune Co., which filed for bankruptcy in Dec. 2008.

- Kohlberg Kravis Roberts (KKR) and the Texas Pacific Group, which spent $45 billion to acquire TXU in Feb. 2007, including $24 billion of debt.

- A consortium of firms, including Bain, KKR and Merrill Lynch Global Private Equity, which acquired hospital owner HCA in July 2006 for $21 billion, plus the assumption of $11.7 billion of debt.

"Nine of the 10 biggest leveraged buyouts were done between 2006-2007," Gross notes. "They bought into cyclical industries right at the peak and loaded a ton of debt on them, which is not a winning proposition. "

No comments:

Post a Comment