“To have a blanket number like that is micromanaging too much from a regulatory point of view,” Black said today at Columbia Business School’s Private Equity and Venture Capital Conference in New York. “Different industries have different growth rates” and other factors.
The Federal Reserve and Office of the Comptroller of the Currency are pressing banks to restrict senior debt in the leveraged buyouts they finance to no more than six times cash flow. The government, in an annual review of bank credit, looked at a $429 billion sample of leveraged loans and found 42 percent were “criticized,” or classified as having a deficiency that might lead to a loss. Starting in September, it sent letters demanding banks draw up plans to improve the quality of their loans and a warning that regulators will pay close attention to high-risk loan performance in stress tests.
Tighter credit could curb profits for private-equity firms, if they are forced to put up more cash for their takeovers or are restricted from piling additional debt onto their portfolio companies for purposes such as paying themselves dividends.
Apollo, founded by Black in 1990, has been one of the most active sellers of holdings in the past year as asset values soared. Black said he sees investment opportunities in energy and financial services and likes portfolios of non-performing loans in Spain and Ireland. New York-based Apollo oversees more than $161 billion.
Apollo’s shares rose 1 percent to $32.35 at 2:23 p.m. in New York. They’ve risen 38 percent in the past year.
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