Home Depot – the first LBO to break $100bn?
this size is potentially on the horizon.
If it does occur, then corporate bond holders better watch out. A leveraged buyout results in a large amount of debt placed on the victim’s balance sheet, and inevitably results in multiple credit rating downgrades. LBO targets have traditionally been BBB rated companies as they tend to be smaller companies than their higher rated contemporaries, and are therefore within range of private equity companies. A deal of $100bn would suddenly bring a significant part of the UK corporate bond market into play. Spreads may well then widen out across the board, because LBOs mean higher leverage, which in turn means greater default risk.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.
16 years of comment
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