Blackstone (NYSE: BX) cannot be faulted for its creativity the way it can be for its share price. The firm says that it does not need the banks which have walked away from their commitments on several LBO deals wrecking them like ships on a reef. The big private equity firm will go straight to hedge funds and mutual funds for deal loans.
It is an ingenious move which has the benefit of cutting out the banks which have charged high fees for their financing and cut and run from many of them. Other private equity firms are likely to follow, leaving the banks with LBO loans on their books and no new transactions which might bring in lending revenue.
Quoted by Bloomberg, the COO of Blackstone said “We’re bypassing the banks. There’s still ultimately demand for this paper out there if you can go directly to the buyers.” Time will prove whether he is right.
It will only take one large private equity deal financed by lending from pension funds to create a new way for LBOs to get funding. The larger question is whether the appetite for these deals is gone altogether pushed out of the picture by credit market concerns and the obvious issue of whether a company with too much leverage can ride out a deep recession.
Either way, the banks are toast.
Douglas A. McIntyre