From PE Week Wire, July 10, 2007:
I know firsthand that many general partners refuse to take stock in what ratings agencies have to say about their marketplace, at least when they’re speaking on the record. After all, it seems that every time a company is levered up, the ratings agencies pounce on it with a press release that notes how risky the deal is and how much strain the additional debt puts on the company, even though debt is the very life-blood of the LBO industry.
But one is left to wonder how long the current economy, which has easily shouldered the weight of some heavily levered deals, can last. For Q2 2007, Standard & Poor’s Leveraged Commentary & Data, says the average debt-to-EBITDA ratio for buyouts of companies with more than $50 million of EBITDA was about 7x, while companies with up to $50 million of EBITDA command an average leverage ratio of just more than 6x EBITDA. It’s hard to see how LBO firms can go much higher.
Today’s blog is by Ari Nathanson, Senior Editor of Buyouts Magazine.