Bangkok--2 Jun--Standard & Poor's
This year is seeing an avalanche of corporate downgrades, and private equity investors--following years of torrid private equity activity--are sharing some of the misery, said an article published today by Standard & Poor's.
In the year to date, downgrades have vastly outnumbered upgrades by almost 15 to 1. Private equity investors are significantly exposed to these downgrades, including defaults, according to the article, titled "Global Credit Comment: Exposure To Deteriorating Assets Increases Risks To Private Equity (Premium)."
The explosion of buyout activity in recent years inevitably positioned private equity investors squarely in the speculative-grade segment. In their search for yield, sponsors typically targeted troubled entities, or at the very least ones that appear to be, and many of these companies are rated speculative grade.
The expertise of private equity groups to identify and rehabilitate entities, at a time when liquidity was abundant and confidence was soaring, worked very well, which, in turn, fueled the use of this model even further. However, the economic landscape has changed dramatically, and the current recession is bearing down on companies across the ratings spectrum, but is particularly harsh on entities at the lower end.
"The decline of asset valuations on the heels of the economic recession has hurt private equity investors to a certain extent," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "However, this may have also given sponsors a window of opportunity to further build up and diversify their portfolios."
This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers to RatingsDirect, at www.ratingsdirect.com. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Ratings in the left navigation bar, select Find a Rating. Members of the media may request a copy of this report by contacting the media representative provided.
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