Moody’s is unleashing an attack on private equity, The ratings company obviously does not want to be accused of missing a blow-up if buy-out deals which took on too much debt cannot cover the nut.
Given the size of some recent deals and the portion of these purchases that is being funded by borrowing, the Moody’s move may just be to cover it from future bad press.
The FT quotes the Moody’s report as saying private equity’s "tendency to increase a portfolio group’s indebtedness to pay themselves large dividends runs counter to their claim of being long-term investors."
The Moody’s attack is likely to cause a lot of mud slinging.
But, the trouble that Moody’s is talking about is already beginning. As The Economist points out, a number of planned deals are already being cancelled: "Sensing a shift in the economics of the industry, creditors around the world have started questioning the easy money offered to private-equity firms, which feed off risky types of debt."
Of course, markets that create great wealth over relatively short period often come apart as quickly. That is the concern at Moody’s and it is not an unfair one.
Douglas A. McIntyre
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