PE firms are using non traditional collateral for getting financing for their acquisitions, since on hand cash is at its lowest in many years. Traditionally, P

PE firms are using non traditional collateral for getting financing for their acquisitions, since on hand cash is at its lowest in many years. Traditionally, PE firms would obtain cheap financing from a bank or another finance provider to carry out a leveraged buyout - the PE firm pays a small percent of the acquisition cost using cash, the banks cover the rest, while interest payments to the bank are covered by cash flows of the acquisition target. But with the higher cost of financing that is available for traditional collateral like the acquisition firm, the PE firms have had to resort to providing collateral using other sources, such as the cash flows of the PE management company itself, or the equity returns of the acquisition target. This could be the fees that are paid to the PE firms themselves to manage the money - it would have been very taboo to expose the management company to risk like that, but now PE firms don't care. Interest rates are skyhigh, around 20%, which is actually high for corporate, and usually the rate for consumer loans. So yeah, PE is changing quite significantly, and the old model of doing business won't work.