Wednesday, December 03, 2008

Private equity equals public debt

Case in point: Hawaiian Telecom.

Carlyle's Bet on Telecom in Hawaii Ends Badly
Hawaiian Telcom Communications Inc. filed for bankruptcy protection Monday

Carlyle bought Hawaii's largest telephone carrier from Verizon Communications Inc. in 2005 for $1.6 billion, putting up $425 million in equity and using debt to finance the rest.

Of the 109 U.S. companies that have filed for bankruptcy this year with assets of $1 million or more, 67 have been owned by buyout shops or been spun off by them

From 2005 through the third quarter of 2008, private-equity firms added $741 billion of debt on company balance sheets

Such was the case of Hawaiian Telecom, which in the nine months ended in September paid $68.2 million in interest expenses, on top of a $35.7 million operating loss.
Guambat was particularly amused by the cynical juxtaposition of this little aside at the end of that article:
Separately, Hawaiian Telcom's lead law firm, Kirkland & Ellis LLP, beefed up its restructuring group over the weekend by rehiring James Sprayregen, who previously spent 16 years at the firm. In 2006, he decamped to Goldman Sachs Group Inc. to work as an investment banker.

"I feel like this next wave of corporate bankrupticies is just starting," said Mr. Sprayregen, who will co-chair the law firm's bankruptcy group.

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