The coming rise in interest rates could pose a risk to private equity.
Acquisitions of unlisted companies by leveraged debt (
leveraged buy-out
, or LBO) are in fact carried out with variable rates.
These financial arrangements, legion in the sector, are revised by the lending banks every three months on average.
Which in this period of rising rates should increase financing costs.
The stakes are colossal in a sector in full euphoria for a few years: 1.100 billion dollars of mergers and acquisitions operations were carried out in 2021 according to Bain & Cie.
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“At this stage, the risk for the sector is limited
, however assures Éric Cartier-Millon, associate lawyer at Gide Loyrette Nouel.
Most funds have set up hedges in recent years to protect a large part of the debt against a rate hike.
This eliminates systemic risk.
Other safeguards have…
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