Debt Cycle: Late Inning Warning Signals?

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Debt Cycle: Late Inning Warning Signals?

Debt Cycle: Late Inning Warning Signals? by David Schawel, Economic Musings

For market participants that were around during the 2006-2007 time period, the last few weeks brought up some memorable M&A names. For instance, this week First Data filed to go public. If you remember, KKR took First Data private in a $29bil deal which was the last “big” one before the crisis. The shareholders did well, and the company was left with nearly $22bil of additional debt, or 9x the amount on its balance sheet before the LBO.

The S-1 filed Monday shows operating profit has grown from $1bil in 2012 to $1.4bil in 2014, but the company has still lost money with interest expense from the debt between $1.7-1.9bil per year. Debt isn’t substantially lower at over $20bil, but arguably a lighter load with EBITDA trending higher. Despite a very untimely LBO in hindsight, First Data has reaped huge benefits of the low interest environment issuing monster leveraged loans and refinancing existing debt at lower costs.

It’s not just First Data, additional pre crisis deals such as Hilton and Sunguard are also expected to file and go public later this year – both deals scrutinized after the crisis but now back in the money.

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Screenshot 27Bonhoeffer Fund's performance update for the month ended July 31, 2022. Q2 2022 hedge fund letters, conferences and more The Bonhoeffer Fund returned 3.5% net of fees in July, for a year-to-date return of -15.8%.   Bonhoeffer Fund, LP, is a value-oriented private investment partnership for . . . SORRY! This content is exclusively for Read More