US junk loan crackdown squeezes private equity

New York

BIG private equity deals have fallen through or had to be reworked in recent weeks because many banks, under US regulatory pressure to reduce their risk-taking, are no longer willing to provide as much debt as their clients want.

This could lead to lower returns for private equity investors, because they are being asked to put more of their own money into deals, potentially reducing their return on equity. Reuters interviews with several private equity executives and investment bankers, who asked not to be identified disclosing confidential information, show that buyout firms now regularly project annualised returns of about 15 per cent when they agree to deals, even as they promise 20 per cent-plus returns to investors.