The Private Equity Council, a lobbying group that represents a dozen or so mega-firms, has hit out at a “misleading” Standard & Poor’s report.
Released in November, the report stated that of the 86 corporate defaults worldwide so far in 2008, 53 were “involved in transactions with private equity at one point or another”.
Responding to media coverage of the S&P data, PEC said that of the 86 corporate defaults, only 22 were “actually private equity owned and controlled”. Such companies would include the likes of The Carlyle Group’s Hawaiian Telecom and Kohberg Kravis Roberts’ Masonite International.
The stability offered by sponsors' financial strength may have deferred or even averted some defaults.
Standard and Poor's
Other defaulted companies, such as advertising and marketing company Interep and hotel operator French Lick Resorts, are “mischaracterised as being related to private equity”, said the statement from PEC.
Interep, for example, was a publicly traded company. It was only bought by private equity owners in March in a pre-packaged bankruptcy having already defaulted on its debt. The new owners failed to revive the company amid worsening market conditions.
French Lick is controlled by Orange County Holdings, which is not a private equity firm, but rather a corporate-owned vehicle for “charitable and philanthropic” purposes.
The original report from S&P did in fact state that “The practices adopted by sponsors may or may not have exacerbated the targets' balance sheets… The stability offered by sponsors' financial strength may have deferred or even averted some defaults.”
S&P was unavailable for comment.