Private equity firms are freaking out, worried that companies they own are mostly cut off from the $377 billion in small business loans and grants covered by the $2 trillion U.S. coronavirus relief bill.
In the past decade, the private sector encouraged portfolio companies to tap the loan market rather than issue high-yield bonds, which were largely closed off to businesses their size, Washington Post reported. Today, about half of leveraged loans — $1.5 trillion worth — are issued by sponsors for private equity holdings.
Private-equity firms own everything from fast-food restaurants and hotels to hospitals and dental offices. Their investments are financed using debt, sometimes as much as 70 percent, according to Barrons.
Private equity is an alternative form of private financing, away from public markets, in which funds and investors directly invest in companies or engage in buyouts of such companies. Private equity firms make money by charging management and performance fees from investors in a fund.
Bankruptcy could face private-equity firms if the coronavirus crisis lasts 18 months, said Bill Ackman, head of hedge fund firm Pershing Square Capital Management.
