A clue was found in a recent “attack ad” run by a super-PAC in connection with the upcoming South Carolina primary. The ad, which runs over half an hour, interviews workers who lost their jobs after take-overs of their employers by a private equity fund founded by one of the candidates.
Most bankruptcy lawyers – regardless of political persuasion – had the same reaction to this ad: ”Welcome to my world.” The voices of displaced workers are all too familiar to those who work in the restructuring world, as are private equity firms and other distressed debt investors.
There is vigorous debate on the question of whether the infusion of private equity money/control creates jobs or eliminates them. (Or both). I am not going to jump into that particular fray. However, it’s beyond debate that private equity, if not a major driver in the bankruptcy world today, is often behind the wheel.
While only a portion of funds raised through private equity funds are dedicated to distressed, many of the companies in chapter 11 right now are owned or controlled by private equity, even if the funds were initially invested as venture capital, growth capital, mezzanine, etc.
I came across this interesting statistic: at the end of last year, the private equity funds under management were approximately $2.4 trillion, of which a substantial percentage is available for investment. No one knows exactly how much “dry powder” there is out there. Some industry analysts say its in between $200 and $500 billion. Inevitably, a good part of those funds will end up invested in distressed debt – or in mezzanine debt, or growth or venture capital, but the investments will end up distressed.
Last week, it was rumored that the county’s largest private equity firm is looking at American Airlines (which filed chapter 11 ostensibly to cut its labor costs).
My prediction: Watch the industry focus of the top private equity firms. This will dictate what restructuring professionals will be doing in 2012.
What are your predictions?