“We had many years of easy money and low interest rates where companies owned by private equity took advantage,” said Jeanine Arnold, an executive at rating agency Moody’s.
That’s in response to private equity’s biggest names including KKR and Bain Capital handing over distressed companies to the lending arms of rivals as higher interest rates, stubborn inflation and supply chain issues hit private equity firms hard.
It also demonstrates the growing influence of credit provided by the lending arms of the same large private equity firms. Private credit has been a faster growing business than buyouts in recent years, including for Apollo, Carlyle and KKR.
Bain Capital’s European business recently ceded ownership of German manufacturer Wittur to KKR’s credit arm, according to people familiar with the deal while in the US, KKR’s investment in healthcare company Envision was wiped out in a deal for a group of senior lenders including Blackstone to take over the company in May.
Private equity-owned businesses are struggling partly because some of the debt used to finance buyouts was not hedged against interest rate rises. As rates have gone up, loan repayments have increased and companies have had to spend more money servicing their debt. Read more about how the tough economic situation is affecting private equity here.
Here’s what else I’m keeping tabs on today:
Nvidia: Investors are set to assess whether enormous demand for artificial intelligence products can help offset a decline in global sales for computer hardware when the world’s most valuable chipmaker reports its highly anticipated quarterly results.
Peloton: Interactive fitness group Peloton is expected to post a loss of 39 cents a share in the last quarter, almost 90 per cent smaller than the year-ago period as it works to cut costs and boost sales while contending with lower post-lockdown demand.
US politics: Barring a last-minute change of heart, Donald Trump’s absence from tonight’s Republican presidential debate in Wisconsin is set to divide his rivals in the party and deepen his rift with host Fox News.
Economic data: S&P Global releases flash purchasing managers’ indices for the US, the UK, the EU, France and Germany. Economists project that US new home sales rose to 705,000 in July from 697,000 in June as a lack of available existing homes drive up demand for new residences.
Five more top stories
1. Saudi Arabia consulting boom bolsters PwC’s UK partner pay, after rising costs last year looked set to dent the Big Four firm’s profits. Partners in the UK firm, which encompasses its Middle East operations, were paid an average of £906,000 for the 12 months to June, down £119,000 from the previous year when a windfall from the sale of a business unit propelled their average takings to more than £1mn. Read more about how revenues at the Middle East business rose here.
2. Crypto has ‘amplified financial risks’ in emerging markets, according to central banks. The Bank for International Settlements said on Tuesday that novel solutions to payments challenges should not be classified as “dangerous” simply because they are different. However, the global central banking body added that the appeal of crypto was “illusory”.
3. Pension funds are backing crypto prime broker Hidden Road, a company that helps hedge funds take bigger bets on volatile digital assets. Retirement plans such as those of US defence contractor Lockheed Martin are among those putting their money into the London-based broker. Here’s why analysts think the investment is risky.
4. The White House has told China to be more transparent about its economic health after Beijing halted publication of data on its soaring youth unemployment last week and cracked down on corporate due diligence reporting in the country. The US national security adviser criticised the moves as not “responsible”. Read more from Jake Sullivan’s remarks to reporters yesterday.
Chinese policy: The central bank’s modest interest rate cut highlights Beijing’s dilemma of boosting its stuttering economy without destabilising its $56tn banking system.
Brics summit: Chinese leader Xi Jinping and his South African counterpart said they found common ground on expanding the emerging markets bloc. Joseph Cotterill reports on the group’s meeting from Johannesburg.
5. Exclusive: Britain will proscribe the Wagner group as a terrorist organisation “within weeks” after officials spent months building up a detailed legal case, government insiders revealed. The home secretary is expected to announce the designation for the Russian mercenary network as part of a fresh crackdown after criticisms of inaction.
More UK politics: Chancellor Jeremy Hunt faces mounting calls from Tory MPs to cut taxes after new data showed public borrowing was lower than expected last month.
The Big Read
Buoyed by petrodollar windfalls, oil-rich Gulf states are determined to chart their own courses in an era of polarising, shifting global dynamics. At the forefront are Saudi Arabia, the world’s top oil exporter, and the United Arab Emirates, the region’s dominant trade hub. The common theme in both Gulf powerhouses is one of self-assured, assertive leaders who are no longer willing to accept “with us or against us” US demands — and an increasing focus on the east.
We’re also reading . . .
New bacterial ‘dark matter’: Scientists are finding new ways to sift through many of the world’s bacterial species that grow unseen as they cannot be conventionally grown in a lab. On Tuesday, an international team announced that they had identified a potential new antibiotic lurking in the sandy soil of North Carolina.
Consumer prices: Some of the world’s biggest companies have signalled they might be ready to slow price rises, but shoppers would still feel the pinch of expensive goods.
Irish economy: A puzzling bump to EU data recently came entirely from a 13.1 per cent surge in industrial production growth from Ireland, highlighting how the country’s wild data is distorting the region’s statistics.
Niger coup: Who lost Niger? Apart from France’s policy failure in west Africa, the US’s “difficult” talks with the military junta have also led nowhere, writes Le Monde’s Sylvie Kauffmann.
Chart of the day
Global stock markets have lost about $3tn in value this month, as a “witches’ brew” of gloomy Chinese economic data and surging US borrowing costs sour investor sentiment after a bumper start to the year.
Take a break from the news
Why has an orthopaedic shoe long-favoured by dentists and gardeners become a fashion favourite? The clog is hardly known for its elegance but what was once a piece of peasant workwear has become a high-fashion staple for the style-obsessed.
Additional contributions from Benjamin Wilhelm and Tee Zhuo
Source: Economy - ft.com
