| UK looks to extend bailout loans to private equity-owned groups 00:36 - Aug 17 with 166 views | BringBackTheRedRoom |
Officials want to help debt-laden companies which employ hundreds of thousands of workers
The British government is trying to find a way to offer state-backed loans to debt-laden companies owned by private equity groups, in the hope of rescuing a swath of the British high street.
The Business, Energy and Industrial Strategy department (Beis) wants to help private equity-backed groups that employ large numbers of people, such as PizzaExpress, Prezzo or Merlin, the owner of Legoland, without breaching EU state aid rules, according to four people involved in the process.
They cautioned, however, that there is no guarantee the government will find a solution.
PE-backed companies typically carry high levels of debt to reduce their tax bill, resulting in statutory losses even when they are generating cash.
Consequently, they have not been able to apply for emergency coronavirus loans, since EU rules say companies whose losses exceed 50 per cent of their share capital are ineligible for government support.
Opening up access to the loans, which are worth up to £200m and come with a guarantee that the taxpayer will repay 80 per cent if a company fails, would be controversial.
PE groups often leave their portfolio companies with only a thin financial cushion to ride out economic downturns, and the industry is currently sitting on a record $2.5tn in dry powder that is waiting to be invested.
“Policymakers have been rewarding excessive levels of debt across the board ever since the financial crisis, via quantitative easing,” said Peter Morris at Oxford university’s Saïd Business School.
“But private equity firms and their supporters often talk about the virtues of the so-called ‘discipline of debt’. It seems hard to square that with accepting taxpayer handouts,” he added.
The UK government is concerned about employment, with nearly 750,000 jobs having been lost since the start of the crisis. The industry lobby group BVCA says that companies invested in by the private equity and venture capital sectors account for more than 840,000 jobs.
“We are aware of the issue surrounding some firms being able to access [the loans] . . . and continue to explore whether anything more can be done to support these businesses,” a government spokesperson said in a statement.Â
Private equity groups want the government to issue explicit guidance to banks to allow them to ignore or reinterpret the debts that companies typically owe to their owners, in order to reassure lenders they would not be exposed to defaults.
“This has been subject to a lot of dialogue at industry level,” said one senior banker at a high street bank. “Their guidance already provides discretion for a lender to treat shareholder loan notes as equity, but notwithstanding this, some lenders appear to think it’s not sufficiently explicit.”
Another banker called for a “common sense interpretation” of the guidelines. Some banks have already quietly started giving coronavirus loans to affected firms, but others are nervous about acting without more explicit guidance from regulators.
Private equity groups said the government should act soon, since many of the companies they own were offered temporary extensions to their financing at the start of the pandemic, but these deals are now expiring.
“It’s a natural moment to be saying, it would be nice to get clear on [the state-backed loans] and we wouldn’t have these challenging conversations with the banks,” said one private equity lobbyist. The bailout loans “are more attractive and less onerous” than other types of lending and “give the banks more comfort,” the person added.Â
After failing to receive state-backed loans, many private equity firms have in recent months tapped bond markets, turned to private credit providers and in some cases used their own funds to support the companies they own.
Separately, banking executives are also in talks about providing extra guidance around how to restructure the state-backed debt if a borrower needs more money or an extension.
Applications to the state-backed loan scheme have slowed in the past two weeks, with £3.4bn lent to 896 businesses under the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and £13.4bn lent to 121,669 businesses under the smaller Coronavirus Business Interruption Loan Scheme (CBILS).
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| UK looks to extend bailout loans to private equity-owned groups on 08:47 - Aug 17 with 158 views | spudgun |
Must say I don`t really understand big finance, and debt in particular worries me. If Donald Trump gloating calls himself "The King of Debt" then you know it is something to beware of.
`State aid rules` will probably be a sticking point in negotiations with the EU, and is something this government will be looking to wangle in some way in the future.
I am quite simplistic in my business dealings and am risk averse money-wise, and even a visit to the accountants once a year leaves me with a headache. Unravelling this would give me a migraine....  | | | |
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