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Global Credit Research - 07 Dec 2011
New York, December 07, 2011 -- Many of the large, bubble-era leveraged buyouts (LBOs) have
shown weak revenue growth, soft earnings performance and stable
to declining ratings since their LBO closing and investors await better
conditions for their exit, says a new report by Moody's Investors
Service.
"As a group, these private-equity backed companies
which represent LBOs with an initial transaction value of more than $400
billion demonstrated lackluster performance and have had a high default
rate through distressed exchanges," says Lenny Ajzenman,
a Moody's Senior Vice President. "A number of these
large LBOs, such as Hawker Beechcraft and HD Supply, have
large maturities and remain at high risk of default or balance sheet restructuring
over the next few years."
Weak financial performance, in addition to gloomy global economics
and resultant choppy capital markets may make it difficult for private
equity investors to realize returns, especially those invested in
lower-rated LBOs, notes the report. Given the significant
debt maturities in 2013-2015, Moody's expects sponsors
to pursue IPOs, credit agreement amendments and refinancing,
but only if the financial markets are accommodating.
Moody's studied 40 LBOs rated by the agency during 2006-2008
including casino owner Harrah's Inc., (now known as
Caesar's Entertainment Inc.), energy conglomerate Energy
Future Holdings Corp. and automaker Chrysler LLC. While
some companies have seen ratings improvement, including discount
retailer Dollar General now rated at Ba2, from B3 at the LBO close,
only four have obtained a higher CFR than during their buyouts without
a default, says the report. Car auctioneer KAR Auction Services,
private education provider Education Management and hospital operator
HCA Inc. are among those now higher rated.
The report notes significant downwards rating drift since the LBO dates,
as companies struggled with high initial leverage that limited their flexibility
during the recession. Soft earnings performance, large near
to medium term debt maturities and debt-financed shareholder payouts
have contributed to weaker credit profiles for some.
For more information, please see the full report "Lackluster
Performance for Bubble-Era LBOs" on www.moodys.com.
***
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0800-891-2518, or Buenos Aires 0800-666-3506.
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web site at www.moodys.com.
Lenny J. Ajzenman
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Peter H. Abdill, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's: Lackluster Performance for Bubble-Era Leveraged Buyouts
No Related Data.
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