LBOs Drive Defaults Higher, Worsen Recoveries: Moody’s

Companies that underwent leveraged buyouts recently tended to default more often and recover lower in bankruptcy, according to a new report from Moody’s Ratings.

• The ratings firm analyzed bankruptcies occurring from 2021 through 2023 and found that LBOs helped propel the US issuer-weighted corporate default rate to 5.6% in 2023, a level that has continued to rise
• Moody’s also found that the recovery for leveraged buyouts was 44% compared to a higher 51% for companies that didn’t have backing from private equity sponsors
• That’s a recent shift as recoveries from leveraged buyouts in data going back to 1987 averaged closer ...