Where Are All the Private Equity Bankruptcies?

Few companies have felt the shock from soaring interest rates as much as those owned by private equity. But thanks to surprisingly resilient earnings and their deep-pocketed owners’ talent for financial engineering most are avoiding disaster.

There have been some big bankruptcies, including the collapse of Envision Healthcare Corp. in May just five years after it was acquired by KKR & Co. for $9.4 billion. But so far, default rates have been lower than during the global financial crisis and the early part of the pandemic. While PE investors face lower returns, the financial reckoning may be less acute than I initially expected — providing there isn’t a deep recession.

US Leveraged Loan Defaults Have Risen

Following a decade in which cheap money fueled a buyout boom featuring increasingly optimistic valuations, the most aggressive rate-hiking cycle in decades has triggered a hangover.

With takeovers and IPOs subdued, PE firms can’t play pass the parcel with assets anymore, and the interest expenses on their portfolio companies’ floating-rate borrowings have often more than doubled.