Moulton warns investors against holding debt and equity in same company
Private equity figurehead says buying debt in companies where equity is held can frustrate creditors
One of the most senior private equity figureheads has warned investment
groups against buying debt in companies that they also hold equity in.
Jon Moulton, founder of
Alchemy Partners,
said private equity groups that own both debt and equity risk are harming
creditors’ abilities to enforce a default, delaying write-offs of their
investment.
‘With 25% or even less you can get a seat at the creditors’ top table or
create a blocking minority,’ Moulton told the
Financial Times. ‘That
way they can stop the nasty debt boys from enforcing a debt-for-equity swap.’
He argued that private equity groups risk disappointing investors when they
use their main buy-out funds to take on leveraged loans due to the capped
returns on debt against the potentially unlimited gains on equity.
Further reading:
Bank
annual reports are ‘unreadable’
