The Secret Sauce for Private Equity Is Running Dry
As banks cut funding and borrowing costs rise, investors question industry performance.
The Citrix LBO hammered the lenders involved.
Photographer: SOPA Images/LightRocketAs banks get burned from financing billion-dollar buyouts and pension funds grow impatient with private equity’s endless thirst for capital, skepticism is growing louder over the industry’s performance — and whether some of their daredevil deals could result in disastrous losses for their financiers.
The mood on Wall Street is quickly souring. Firms such as Bank of America Corp., Credit Suisse Group AG and Goldman Sachs Group Inc. are nursing more than $600 million of losses from a single deal: the $16.5 billion leveraged buyout of cloud computing giant Citrix Systems Inc. in January. Borrowing costs have surged since. Banks ended up selling $4 billion secured Citrix bonds at only 83.6 cents on the dollar, splashing red ink on their own balance sheets.