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
said private equity groups that own both debt and equity risk are harming
creditors’ abilities to enforce a default, delaying write-offs of their
‘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.
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