End of the Private Equity Party?

Investors have grown leery of "toggle" notes and other high-risk debt. That may slow private equity's buyout boom

When it comes to borrowing money, it has been pretty close to anything goes for private equity firms in recent years. Not only have investors been willing to gobble up billions in high-risk debt used to finance private equity deals, but banks have also loosened their lending requirements, helping to drive the record volume of leveraged buyouts (see BusinessWeek.com, 6/4/07, "The Private Equity Effect"). The interest rates paid on bank loans dropped to all-time lows. Requirements for collateral were loosened. And then there was the new breed of "toggle" notes. If a company that borrowed billions couldn't generate enough cash to make its interest payments, no problem. Toggle notes let them borrow even more money to make the payments and stay afloat.

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