Apr 13, 2017

Private equity lards on the debt in 2017

Private equity multiples breached Fed guidelines in Q1, according to new data published on Thursday by PitchBook. It shows debt-to-equity multiples hit a whopping 6.2x in Q1, compared to 5.4x for the entirety of last year and a 5.19x average between 2011 and 2016.

What the Fed says: Four years ago, America's central bank issues guidelines that debt-to-EBITDA ratios (for most industries) shouldn't exceed 6x.

What happened: For a while, most everyone played by these rules ― largely because banks were scared of crossing the Fed. Then a bunch of one-off transactions began breaching the threshold, particularly in tech. Then "baskets" of deals began to breach. All the while, the Fed did little more than send the occasional letter of reprimand. The takeaway for banks was: You can do it, just don't flout it.

Should the Fed care more? It's tough to argue that companies benefit from being over-leveraged but, from a public policy standpoint, private equity-backed deals don't pose a systemic risk. Namely because the failure of one PE portfolio company shouldn't impact the fortunes of another PE portfolio company, even if held in the same fund.

Caveat: It can be very difficult for data providers like PitchBook to accurately gauge market-wide leverage multiples, given that so many LBO values and debt breakdowns are kept private. Thus the average is prone to being weighted toward take-private transactions, which tend to be larger (and, historically, have higher leverage multiples). It's also worth noting that PitchBook also reported a mark in excess of 6x for Q1 2016, but the overall year settled much lower.

Go deeper

Live updates: Possible U.S. community spread of coronavirus as more countries report cases

Data: The Center for Systems Science and Engineering at Johns Hopkins, the CDC, and China's Health Ministry. Note: China numbers are for the mainland only and U.S. numbers include repatriated citizens.

The CDC said Wednesday U.S. clinicians have found the novel coronavirus in a person who did not recently return from a foreign country nor knowingly have contact with anyone infected, as six more countries reported their first cases.

The big picture: COVID-19 has killed more than 2,700 people and infected over 81,000 others. By Wednesday morning, South Korea had the most cases outside China, with 1,261 infections. Europe's biggest outbreak is in Italy, where 374 cases have been confirmed.

Go deeperArrowUpdated 6 mins ago - Health

Mass shooting in Milwaukee: What we know so far

Milwaukee Mayor Tom Barrett in 2012. Photo: John Gress/Corbis via Getty Images

Six people died in a shooting at the Milwaukee Molson Coors brewery complex on Wednesday, including the shooter, Mayor Tom Barrett told reporters at an evening press conference with local police.

What's happening: Police said "there is no active threat" just before 6 pm ET, but noted the scene remains active. Police chief Alfonso Morales told reporters that officers have "more than 20 buildings we have to secure" at the complex and they do not currently have all employees accounted for, as more than 1,000 were at the complex during the shooting.

Go deeperArrowUpdated 38 mins ago - Politics & Policy

Trump assigns Pence to lead U.S. coronavirus response

Photo: ANDREW CABALLERO-REYNOLDS/AFP via Getty Images

President Trump announced at a press briefing Wednesday evening that he'll be putting Vice President Mike Pence in charge of leading the administration's response to the coronavirus.

The big picture: In the wake of a market sell-off and warnings from health officials that there's a real threat of the coronavirus spreading in the U.S., Trump sought to reassure the nation and Wall Street that the U.S. is "ready" for whatever comes next.

Go deeperArrowUpdated 3 hours ago - Politics & Policy