Private Equity Reaches For The Gold, Article Says

The ongoing dislocation in the credit markets is blazing new relationships and creating new business opportunities, said an article published today by Standard & Poor's. The article, which is titled "Global Credit Comment: Looking For Profit In All The Right Places (Premium)," highlights the results of our investigation into this development and presents the salient points of our near-term and longer-term outlook. One example of the emerging dynamic is the recent foray by some large private equity firms as buyers of leveraged finance in the U.S. and Europe, which offers insights into how the new terms of engagement are motivating alternative players in newfangled ways. Banks (such as Citigroup, Credit Suisse, Deutsche Bank, JP Morgan, and Royal Bank of Scotland) eager to offload their unsold inventory of leveraged loans and high-yield debt have found buyers in prominent private equity groups (including Apollo, GSO Capital/Blackstone, KKR, and TPG). According to estimates by Standard & Poor's LCD, the dollar volume of leveraged loans held on bank books had dropped to $45 billion in July 2008 compared with $237 billion 12 months earlier; a chunk of this reduction (approximately $25 billion-$30 billion) can be attributed to purchases by private equity. These deals can be viewed as opportunistic attempts by larger, deep-pocketed private equity sponsors to maximize risk-adjusted returns in an environment where there are few outlets for traditional strategies, such as buyouts. "By selling their inventory of hung loans, banks are receiving substantial near-term relief to balance sheets and their capital bases," said Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. "However, residual exposure is not completely eliminated." The current illiquidity in the leveraged finance markets (loans and high yield bonds) has created a special opportunity for private equity investors to extend their know-how and expertise in unconventional ways to generate superior risk-adjusted returns. Other asset classes that are beset with relative illiquidity (e.g., securitized debt) also stand to benefit from the increased presence of private equity. This article is part of our premium Global Fixed Income Research content, which is available to premium subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Members of the media may request a copy of this report by contacting the media representative provided. Media Contact: Mimi Barker, New York (1) 212-438-5054, [email protected] Analyst Contacts: Diane Vazza, New York (1) 212-438-2760 Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data. With approximately 8,500 employees, including wholly owned affiliates, located in 23 countries and markets, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com. Key Contacts: Americas Media Relations: (1) 212-438-6667 media_ [email protected] Americas Customer Service: (1) 212-438-7280 [email protected]

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