Filed under: Deals, Engagements, Private equity industry
Banks that are lending capital to private equity firms for leveraged buyouts might have a new excuse for the “non-funding” of commitments: their legal departments. The Financial Times reports that legal advisors to banks are starting to advise banks that it might be cheaper for them to not fund these massive private equity loans, even if they have to pay a penalty or have to take a hit from a break-up fee.
In an environment where banks have to write-down loans, write-off certain CDOs, and actually have to fight for survival, this may not be too much of a shocker. According to this report, attorneys said that the break-up fees resulting from ending those commitments would be less than the write-downs related to those loans. Envision that. Attorneys advising clients to walk away from their contracts.
It’s no secret that the days of the new giant club deals are done for the foreseeable future. But there is apparently a new reason that takeover targets can demand either tighter terms or higher break-up fees when private equity buyers come knocking.
Jon Ogg is a partner and editor in 247WallSt.com.
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