Junk Bonds, Leveraged Loans, Buyouts by PE Firms, All Blow Past Records in Massive Chase for Yield amid Fed’s Easy Money | Wolf Street

When PE firms engage in a leveraged buyout, they use some equity capital but fund most of the acquisition by having the acquired company borrow the funds itself via issuance of leveraged loans or junk bonds – hence “leveraged buyout” (LBO). The PE firms thereby shuffle the risks off to investors in those debt instruments.

Leveraged loans issued amounted to a record of $576 billion (red). These are loans by junk-rated companies that are too risky for banks to hold, and so banks sell them to investors, including as CLOs. Junk bonds issued amounted to a record $445 billion (blue):

History is full of companies that were acquired through an LBO and, burdened with too much debt, eventually filed for bankruptcy after the PE firms were able to take their profits via fees and special dividends that the acquired companies paid with borrowed funds, leaving investors in the debt hang out to dry.

Junk Bonds, Leveraged Loans, Buyouts by PE Firms, All Blow Past Records in Massive Chase for Yield amid Fed’s Easy Money | Wolf Street

But this time will be different..?