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Private Equity Debt Buybacks: A Second Bite at the Cherry?
by Felix Salmon
Apr 15, 2008
Apr 15, 2008
Here's one for Dear John Thain or anybody else wondering about what happens when a private-equity shop buys the debt of its own portfolio companies. Let's say that the portfolio company in question goes bankrupt, and is taken over by its creditors - who are an arm of the very same private equity company who owned it in the first place. Management stays in place, and the fees remitted back to the private-equity company remain. But at the limited-partner level there's a world of difference: the first set of equity investors is wiped out, while the second set of debt investors ends up with all the equity upside.
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