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What We're Reading
June 23, 2023

Here's what we're reading this week.

  • Covenant defaults are rising for private equity portfolio companies due to higher interest rates and weakening operating performance, according to a recent report from Lincoln International based on its database referencing nearly 4,750 portfolio companies. A substantial share of portfolio companies are at risk of falling below a 1.0x fixed-charge coverage ratio based on 12-month forward rates.
  • The bulk of floating-rate leveraged loan debt taken out by buyout sponsors in the U.S. and Europe is unhedged, according to sources cited in a recent Bloomberg article. Estimates by Verdad Advisers cited in the article pegs 2022 interest cost as a share of EBITDA at 43% for the median portfolio company. An additional 75 bps increase in Fed Funds in 2023 and the lagged effect in cost of funds increases imply more stress to come. More along the same lines from Verdad here.
  • Carlyle Group recently closed on a €1 billion NAV facility backed by 20 portfolio assets in its Carlyle Europe Partners V fund, according to PEI.
  • TA Associates closed fundraising for its flagship TA XV fund at $16.5 billion, ending oversubscribed and above its initial target. The fund size is up from the $12.5 billion hard cap for TA XIV, which closed two years ago. The fundraise is a bright spot in what is otherwise expected to be a challenging year.
  • A founders dispute at Blue Owl Capital made the news in several places this week, including on Bloomberg and in Axios, as the firm moves to rebrand units in its post-merger integration. The turbulence comes as the firm recently embarked on fundraising a targeted $13 billion for its Dyal Capital VI fund.

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