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IUF at the European Parliament Highlights Dangers, Risks of Private Equity Buyouts

Posted to the IUF website 10-Apr-2008

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The IUF gave evidence of the destructive impact of private equity buyouts at a public hearing on hedge funds and private equity organized by the European Parliament's Committee on Economic and Monetary Affairs in Brussels on April 8. In addition to describing the impact on jobs and working conditions, the IUF emphasized the dangers of high levels of LBO debt in the context of the current global economic crisis.

"The total volume of buyout deals for 2006 has been estimated as high as 725 billion USD", the IUF said. "2007 was set to surpass that, until the credit crunch froze the big deals. Financial deregulation made it possible for the banks which funded the buyouts to offload their risk through a whole new breed of credit instruments which were largely unregulated. We were presented with wonderful innovations like 'covenant lite', 'toggle loans', PIK notes and so on all basically instruments for funding debt through more debt. Debt was piled onto the books of the portfolio companies, and securitized debt was diffused through the financial universe, in fact so widely diffused that probably no one in this room can provide a plausible estimate of the outstanding volume of LBO debt, the forms in which it exists, or who owns it. In this respect it is no different than the loans which were packaged and repackaged on the basis of subprime mortgages. The total volume is somewhere in the trillions." The presentation concluded with a call for re-regulation of global financial markets.

The text of the presentation is available on the European Parliament website here.