Monday, May 05, 2008
Leveraged Buyout shocker
Similar to the collapse in the Subprime loan market (a type of residential loan) due to a failure to correctly evaluate systematic risk (risk associated with how the general market and economy perform), the risk of LBO debt (leveraged buyout debt, used by private equity firms to buy companies) is also more volatile than previously thought. The shocking thing - and this is the point of this posting - is that despite this recent realization, some private equity firms are doubling down on their investments by purchasing the very debt used to finance their own deals (thereby adding the other type of investment risk other than systematic risk: 'idiosyncratic risk,' which is risk associated with individual companies' performance). I came across the news the other day that Citibank was selling $12.5 billion in LBO debt to private equity firms - see the article at the New York Times. Shocking.
Posted by
James
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3 comments:
Wow Jim, I can't even make my brain try to make sense of all of those words, I know I could do it if I tried but I'm tired. Will you please send me the cliff notes of what you wrote!
we feel a little 'idiosyncratic' just reading that.
Jim, one can immediately tell when Kelly is not the blogger! The funny thing is that I have been following the financial news and I feel like I almost understand what you are saying!
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