UPDATE: Private Equity Firms Slash Debt After Crisis

Listed private equity companies have moved to reduce financial leverage since the onset of the financial crisis enabling them to start investing again, according to a study released Wednesday.

Several publicly-quoted companies in the private equity sector, such as 3i Group PLC (III.LN), Candover Investments (CDI.LN) and SVG Capital (SVI.LN), that had taken debt onto their own balance sheets as well as at their underlying portfolio companies, found themselves in treacherous waters when plummeting stock prices and frozen credit markets forced them to slash the value of their assets.

The amount of debt combined with low valuations meant many listed private equity companies had significantly more liabilities than assets, what is referred to as a negative net liquidity ratio. Shares in these companies reached historic lows.

However, the sector is returning to health and, by the end of April 2010, the 19 European companies that had negative net liquidity at the end of 2008 had reduced their average net liquidity ratio by almost half, said LPEQ, a group of 18 European listed private equity companies following a study of 55 of the largest publicly-listed European firms.

"Their average net liquidity ratio was cut from -18.9% to -9.9% and the 10 companies with the highest leverage improved by over 40%, from -33.5% to -20.0%," said LPEQ.

3i, for example, which had estimated gearing of 56% in December 2008 saw shares fall to historic lows by 2009 in March when it reported a record loss of GBP2.15 billion.

This high level of gearing compared unfavorably with the likes of HG Capital Trust PLC (HGT.LN) and Electra Private Equity PLC (ELTA.LN), which held net cash and were able to carry on investing during the downturn.

Indeed all the 36 companies that had net cash in December 2008 were able to continue investing and as a result decreased their average net liquidity to 34.5% from 38.7%, LPEQ said.

Experts say that steps taken by listed private equity companies to boost their cash positions means many are now prepared to take advantage of an improving market. 3i, for one, whose sweeping measures under a new chief executive to cut debt included a rights issue and asset sales, recently reported net debt of GBP258 million at March 31, down from GBP1.91 billion last year and signaled it was well-placed to start investing again.

"The capital raisings and asset sales that have enabled this process of deleveraging will provide listed private equity companies with an opportunity to focus on new deals," said Joseph A. Malick of NB Private Equity Partners (NBPVF), an LPEQ member.

"This will be especially significant given that we have entered into a more attractive investment environment, aided by the thawing of the credit markets and a return to more consistent pricing expectations," Malick added.

-By Marietta Cauchi, Dow Jones Newswires; +44 207 842 9241; marietta.cauchi@dowjones.com

NB Private Equity Partners (PK) (USOTC:NBPVF)
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