Buyout Bond Docs Shift Loss Risk from PE to Credit, Moody’s Says

Bonds issued to finance leveraged buyouts in the past year display substantially weaker investor protections than other private equity-linked debt deals and may put investors at risk, according to Moody’s Ratings.

As interest rates rose last year, private equity firms negotiated for more covenant flexibility in part by putting up more cash when buying businesses, the credit grader said in a Tuesday report. But that flexibility may end up harming bond investors as PE firms exploits the loose covenants, Moody’s said.

“As PE sponsors claw back their equity with dividends, including those funded with newly-secured debt, risk of loss ...