Taking a stake in a battered business is not without risk. In 2008, private equity firm TPG donated $ 1.3 billion to Washington Mutual, one of the largest savings and loans in the country. When the federal government took over WaMu less than six months later, TPG suffered a big loss.
But the temptation for private equity firms to leap can be overwhelming. In the United States, the industry sits on $ 740 billion in dry powder: the amount of money that pension funds, sovereign wealth funds and other investors have committed to finance either buyouts or equity investments, according to PitchBook, which captures data on private equity firms.
“This crisis will be an opportunity for good lenders to participate in the great reconstruction to get us out of this situation,” said Peter L. Briger Jr., co-managing director of Fortress. “But we don’t know when it will happen. “
With so many companies in need of cash, investors with deep pockets can be demanding. Some may see the current crisis as an opportunity to renegotiate the terms of the deal or even walk away, said restructuring lawyers and investment bankers.
Apollo-backed lender MidCap Financial, for example, has just pulled out of a $ 20 million loan he agreed to make to Senior Care Centers, a nursing home operator that is expected to be bankrupt. , show court documents. Lawyers for MidCap, which specializes in healthcare loans, cited “the credit risks inherent in the growing Covid-19 epidemic and the specific risks posed to at-risk populations in qualified nursing facilities.”
The move prompted lawyers for the operator of a nursing home to scramble to find another lender. A MidCap executive did not respond to a request for comment.