7 ms·

So, if I’m following: Banks are lending to private equity firms to fund purchases of businesses. Many of these businesses are SaaS which means their valuations

by fairity 7mo ago

So, if I’m following: Banks are lending to private equity firms to fund purchases of businesses. Many of these businesses are SaaS which means their valuations are tumbling. It seems possible that valuations tumble so much that the private equity owner no longer has any incentive to operate the business, bc all future cash flows will belong to the bank. What happens in practice then? Will banks actually step in and take operational control? Will the banks renegotiate terms such that the private equity owners are incentivized to continue as stewards? Or, will they prefer to force a business sale immediately?

JumpCrisscross 7mo ago
> Banks are lending to private equity firms to fund purchases of businesses Not quite. Private credit is to debt what private equity is to equity. (Technically, any non-bank originated debt that isn't publicly traded is private credit. Conventionally, it's restricted to corporate borrowers.) So bank exposure to private credit generally means banks lending to non-banks who then lend to corporate borrowers.
- jmalicki 7mo ago
  What does this typically look like? Who is the intermediary here between the bank and corporate borrowers - are these buy side created SPVs?
  - JumpCrisscross 7mo ago
    > Who is the intermediary Business development companies [0]. Blue Owl. BlackRock [1]. > are these buy side created SPVs? Great question! Not always [2]. [0] https://www.reuters.com/business/finance/private-credit-funds-slide-investors-sell-out-2026-03-12/ https://www.reuters.com/business/finance/private-credit-fund... [1] https://www.blackrock.com/corporate/newsroom/press-releases/article/corporate-one/press-releases/blackrock-acquires-hps-investment-partners https://www.blackrock.com/corporate/newsroom/press-releases/... [2] https://www.datacenterdynamics.com/en/news/meta-secures-30bn-blue-owl-finance-package-for-louisiana-data-center-report/ https://www.datacenterdynamics.com/en/news/meta-secures-30bn...
    - vondur 7mo ago
      Am I wrong thinking this is similar to the housing loan crisis of 2008? This is just another form of that "shadow banking" system isn't it?
      - JumpCrisscross 7mo ago
        > This is just another form of that "shadow banking" system isn't it? Private-credit lenders are literally shadow banks [1]. But I'd be cautious about linking any shadow banking with crisis. Tons of useful finance occurs outside banks (and governments). One could argue a classic VC buying convertible debt met the definition. That said, the parallel to 2008 is this sector of shadow banking has a unique set of transmission channels to our banks. The unexpected one being purely psychological–when a bank-affiliated shadow bank gates redemptions, investors are punishing the bank per se. [1] https://en.wikipedia.org/wiki/Non-bank_financial_institution https://en.wikipedia.org/wiki/Non-bank_financial_institution
      - _heimdall 7mo ago
        You'll find plenty of talking heads on YouTube right noe claiming exactly this. Time will tell if private equity is actually wound up as tight as housing was in the GFC.
      - harmmonica 7mo ago
        I don't think you're wrong if the following holds true: Before the housing bubble burst, banks lent funds to countless borrowers who couldn't, ultimately, afford their mortgage payments (because the banks didn't do their due diligence when underwriting the loans). This was widespread across pretty much every bank and mortgage banker. Not sure of the actual percentage of borrowers who, when all was said and done, had no business getting a mortgage for a house or condo, but suffice it to say it was well into the double digits percentage-wise (there's much more to this than simply banks and borrowers with Wall St. playing a major role in the collapse, but just keeping things simple). In this private credit situation the analog for the banks are these private credit funds that have raised the capital they've lent from institutions and high-net-worth individuals (as opposed to banks, which have funds from consumer deposits). The analog to the individual mortgage borrowers from 2008 are actual companies. To connect the dots, if the private credit funds were like the banks pre-2008, where due diligence was an afterthought, then this could turn out to be similar. So the real question is: are the borrowers (businesses in this case) swimming naked? Or do you believe the private credit funds when they say they actually conducted a good amount of due diligence when extending their loans? Once you know the percent of the companies that are naked you can evaluate whether this could/would end up similar to 2008. Nobody knows that yet, even, I suspect, the private credit funds themselves.
- deleted 7mo ago
  [deleted]
- paganel 7mo ago
  > So bank exposure to private credit generally means banks lending to non-banks who then lend to corporate borrowers. Isn't this similar in spirit to the infamous (according to Western media) Chinese shadow banking market? There are articles [1] more than 10 years old talking about the collapse of China because of that practice, but it looks like the US is all too happy to do a very similar thing. I also wonder how big of a market we're talking here, as I was too lazy to check. A few hundred billions? $1 trillion? $2 trillion? More? [1] https://www.cnbc.com/2014/12/03/china-shadow-bank-collapse-exposes-grey-market-lending-risk.html https://www.cnbc.com/2014/12/03/china-shadow-bank-collapse-e...
bryanrasmussen 7mo ago
Wouldn't they still owe interest to the banks on the money they borrowed, as well as the money they borrowed? I mean if all the money I make goes to the bank to pay off my mortgage my solution is not quitting my job, even though life is not very good under that situation.
- miketery 7mo ago
  The business owes the money or the fund. In any case the individuals do not unless they backed it with personal collateral.
  - bryanrasmussen 7mo ago
    hmm, yeah ok so the collateral is the business they are buying, I forgot that one.
- klodolph 7mo ago
  The analogy has a lot of problems. Imagine you got a loan to buy a bunch of laundry machines to run a laundromat. But your laundromat earns $8,000 a month, and the loan payment is $10,000. You can decide to sink $2,000 of your personal money into the laundromat every month, or you can give up.
spamizbad 7mo ago
Banks have zero appetite for taking any operating responsibility for these firms and will work tirelessly to get them off their books ASAP.
- giraffe_lady 7mo ago
  In at least the US and EU but probably elsewhere, the asset categories of banks are tightly regulated as well. They can have transient ownership of anything but there are hard limits on what portion of their assets can be indefinitely tied up in nonbanking businesses that they are operating on their own behalf.
o-o- 7mo ago
> Banks are lending to private equity firms to fund purchases of businesses. Yes some businesses are SaaS but here's the real problem: Many businesses' sole purpose is _leveraged buy-outs_ which really is the devil in disguise. It goes like this: A VC specialising in veterinary clinics finds a nice, privately owned town clinic with regular customers and "fair" prices, approach the owners saying "we love the clinic you've built! We'll buy your clinic for $2,500,000! You've really earned your exit!". So now the VC lends the money from the bank, buys the clinic, and here's the important part: _they push the debt onto the clinic's books_. So all of a sudden the nice town clinic has $2,500,000 in debt, raise prices accordingly, ~~burn out personnel~~ slim operations accordingly, and any surplus that doesn't go to interest and amortization goes straight to the VC. Debt and collateral on the veterinary clinics. Risk free revenue to the VC.
- pembrook 7mo ago
  So yes, PE funds are probably overvalued right now and there are a lot of PE funds getting rich off management fees while not providing promised returns...but this comment is so wrong I don't know where to begin. First, VC stands for venture capital, which is a subset of private equity that does zero LBOs and doesn't even acquire any businesses. VC funds buy equity in startups, and take on zero debt to do so. You have your boogiemen totally confused. Second, the entire point of a PE fund that uses a leveraged buyout strategy is that they need to sell the acquired firm at a profit to make any returns to the fund. LBO funds don't 'cashflow' businesses, and saddling a business with a bunch of debt is antithetical to that purpose anyways. Third, this is not "risk free revenue." It's a high risk strategy to use the debt to increase the value of the business by improving operations enough that you can sell it for a profit to the fund. If you saddle a company with debt and DON'T increase the value of the business beyond the debt you took on, the PE fund will not be in business for fund 2. The risk-free revenue while the fund is alive comes from the management fees that investors in the fund pay (usually 2%, which is way too high IMO, but has nothing to do with the debt or the acquired businesses). Please do not write confident sounding comments about things you don't understand, it spread misinformation and makes the internet a worse place.
  - 7mo ago
elevation 7mo ago
Private equity is a huge inflation driver. I'm thrifty, and for years I enjoyed a $10/mo phone provider, ~$12.39 with taxes. I even evangelized this carrier with some young parents who were struggling to get financial traction while paying off student loans. Our affordable plan came to an end when the rates tripled! Turns out a private equity firm bought the company, jacked the rates on every customer, and sold it off again. This was not a fundamental cost being passed on in slightly increased fees -- it was private equity extracting millions from the people who can afford it the least. Across my financially optimized life, I see this happening repeatedly. Personally, I can afford a more expensive cell phone bill. But I would imagine that many who have a $10/mo plan do not have many other options. I would like to punish the banks who are funding attacks on consumers. If by no other means, then by letting them fail.
- twoodfin 7mo ago
  Why did the phone provider sell to a private equity firm?
  - lobf 7mo ago
    for the money presumably? This questions feels like you're actually making a cryptic statement but I don't understand what it is.
    - twoodfin 7mo ago
      Usually companies that have a fantastic, growing business model don’t sell to PE. I also don’t like it when a money-losing business stops giving me below-market pricing.
      - athrowaway3z 7mo ago
        - Phone subscriptions is a price competitive market in most places, not some growth-hacking industry. - Not every business has a growth story. Not every business needs a growth story. PE can offer a business owner more than they expect it to make by: - being ignorant about the business (Which we are seeing repeatedly) - intend to run it hot to juice the numbers and resell it for their profit.
sharts 7mo ago
Why would banks take control? If they had that skillset or interest they wouldn't be lending to middle men to begin with.

by fairity 7mo ago

JumpCrisscross 7mo ago

> Banks are lending to private equity firms to fund purchases of businesses Not quite. Private credit is to debt what private equity is to equity. (Technically, any non-bank originated debt that isn't publicly traded is private credit. Conventionally, it's restricted to corporate borrowers.) So bank exposure to private credit generally means banks lending to non-banks who then lend to corporate borrowers.

jmalicki 7mo ago
What does this typically look like? Who is the intermediary here between the bank and corporate borrowers - are these buy side created SPVs?
- JumpCrisscross 7mo ago
  > Who is the intermediary Business development companies [0]. Blue Owl. BlackRock [1]. > are these buy side created SPVs? Great question! Not always [2]. [0] https://www.reuters.com/business/finance/private-credit-funds-slide-investors-sell-out-2026-03-12/ https://www.reuters.com/business/finance/private-credit-fund... [1] https://www.blackrock.com/corporate/newsroom/press-releases/article/corporate-one/press-releases/blackrock-acquires-hps-investment-partners https://www.blackrock.com/corporate/newsroom/press-releases/... [2] https://www.datacenterdynamics.com/en/news/meta-secures-30bn-blue-owl-finance-package-for-louisiana-data-center-report/ https://www.datacenterdynamics.com/en/news/meta-secures-30bn...
  - vondur 7mo ago
    Am I wrong thinking this is similar to the housing loan crisis of 2008? This is just another form of that "shadow banking" system isn't it?
    - JumpCrisscross 7mo ago
      > This is just another form of that "shadow banking" system isn't it? Private-credit lenders are literally shadow banks [1]. But I'd be cautious about linking any shadow banking with crisis. Tons of useful finance occurs outside banks (and governments). One could argue a classic VC buying convertible debt met the definition. That said, the parallel to 2008 is this sector of shadow banking has a unique set of transmission channels to our banks. The unexpected one being purely psychological–when a bank-affiliated shadow bank gates redemptions, investors are punishing the bank per se. [1] https://en.wikipedia.org/wiki/Non-bank_financial_institution https://en.wikipedia.org/wiki/Non-bank_financial_institution
    - _heimdall 7mo ago
      You'll find plenty of talking heads on YouTube right noe claiming exactly this. Time will tell if private equity is actually wound up as tight as housing was in the GFC.
    - harmmonica 7mo ago
      I don't think you're wrong if the following holds true: Before the housing bubble burst, banks lent funds to countless borrowers who couldn't, ultimately, afford their mortgage payments (because the banks didn't do their due diligence when underwriting the loans). This was widespread across pretty much every bank and mortgage banker. Not sure of the actual percentage of borrowers who, when all was said and done, had no business getting a mortgage for a house or condo, but suffice it to say it was well into the double digits percentage-wise (there's much more to this than simply banks and borrowers with Wall St. playing a major role in the collapse, but just keeping things simple). In this private credit situation the analog for the banks are these private credit funds that have raised the capital they've lent from institutions and high-net-worth individuals (as opposed to banks, which have funds from consumer deposits). The analog to the individual mortgage borrowers from 2008 are actual companies. To connect the dots, if the private credit funds were like the banks pre-2008, where due diligence was an afterthought, then this could turn out to be similar. So the real question is: are the borrowers (businesses in this case) swimming naked? Or do you believe the private credit funds when they say they actually conducted a good amount of due diligence when extending their loans? Once you know the percent of the companies that are naked you can evaluate whether this could/would end up similar to 2008. Nobody knows that yet, even, I suspect, the private credit funds themselves.
deleted 7mo ago
[deleted]
paganel 7mo ago
> So bank exposure to private credit generally means banks lending to non-banks who then lend to corporate borrowers. Isn't this similar in spirit to the infamous (according to Western media) Chinese shadow banking market? There are articles [1] more than 10 years old talking about the collapse of China because of that practice, but it looks like the US is all too happy to do a very similar thing. I also wonder how big of a market we're talking here, as I was too lazy to check. A few hundred billions? $1 trillion? $2 trillion? More? [1] https://www.cnbc.com/2014/12/03/china-shadow-bank-collapse-exposes-grey-market-lending-risk.html https://www.cnbc.com/2014/12/03/china-shadow-bank-collapse-e...

bryanrasmussen 7mo ago

Wouldn't they still owe interest to the banks on the money they borrowed, as well as the money they borrowed? I mean if all the money I make goes to the bank to pay off my mortgage my solution is not quitting my job, even though life is not very good under that situation.

miketery 7mo ago
The business owes the money or the fund. In any case the individuals do not unless they backed it with personal collateral.
- bryanrasmussen 7mo ago
  hmm, yeah ok so the collateral is the business they are buying, I forgot that one.
klodolph 7mo ago
The analogy has a lot of problems. Imagine you got a loan to buy a bunch of laundry machines to run a laundromat. But your laundromat earns $8,000 a month, and the loan payment is $10,000. You can decide to sink $2,000 of your personal money into the laundromat every month, or you can give up.

spamizbad 7mo ago

Banks have zero appetite for taking any operating responsibility for these firms and will work tirelessly to get them off their books ASAP.

giraffe_lady 7mo ago
In at least the US and EU but probably elsewhere, the asset categories of banks are tightly regulated as well. They can have transient ownership of anything but there are hard limits on what portion of their assets can be indefinitely tied up in nonbanking businesses that they are operating on their own behalf.

o-o- 7mo ago

> Banks are lending to private equity firms to fund purchases of businesses. Yes some businesses are SaaS but here's the real problem: Many businesses' sole purpose is _leveraged buy-outs_ which really is the devil in disguise. It goes like this: A VC specialising in veterinary clinics finds a nice, privately owned town clinic with regular customers and "fair" prices, approach the owners saying "we love the clinic you've built! We'll buy your clinic for $2,500,000! You've really earned your exit!". So now the VC lends the money from the bank, buys the clinic, and here's the important part: _they push the debt onto the clinic's books_. So all of a sudden the nice town clinic has $2,500,000 in debt, raise prices accordingly, ~~burn out personnel~~ slim operations accordingly, and any surplus that doesn't go to interest and amortization goes straight to the VC. Debt and collateral on the veterinary clinics. Risk free revenue to the VC.

pembrook 7mo ago
So yes, PE funds are probably overvalued right now and there are a lot of PE funds getting rich off management fees while not providing promised returns...but this comment is so wrong I don't know where to begin. First, VC stands for venture capital, which is a subset of private equity that does zero LBOs and doesn't even acquire any businesses. VC funds buy equity in startups, and take on zero debt to do so. You have your boogiemen totally confused. Second, the entire point of a PE fund that uses a leveraged buyout strategy is that they need to sell the acquired firm at a profit to make any returns to the fund. LBO funds don't 'cashflow' businesses, and saddling a business with a bunch of debt is antithetical to that purpose anyways. Third, this is not "risk free revenue." It's a high risk strategy to use the debt to increase the value of the business by improving operations enough that you can sell it for a profit to the fund. If you saddle a company with debt and DON'T increase the value of the business beyond the debt you took on, the PE fund will not be in business for fund 2. The risk-free revenue while the fund is alive comes from the management fees that investors in the fund pay (usually 2%, which is way too high IMO, but has nothing to do with the debt or the acquired businesses). Please do not write confident sounding comments about things you don't understand, it spread misinformation and makes the internet a worse place.
- 7mo ago

elevation 7mo ago

Private equity is a huge inflation driver. I'm thrifty, and for years I enjoyed a $10/mo phone provider, ~$12.39 with taxes. I even evangelized this carrier with some young parents who were struggling to get financial traction while paying off student loans. Our affordable plan came to an end when the rates tripled! Turns out a private equity firm bought the company, jacked the rates on every customer, and sold it off again. This was not a fundamental cost being passed on in slightly increased fees -- it was private equity extracting millions from the people who can afford it the least. Across my financially optimized life, I see this happening repeatedly. Personally, I can afford a more expensive cell phone bill. But I would imagine that many who have a $10/mo plan do not have many other options. I would like to punish the banks who are funding attacks on consumers. If by no other means, then by letting them fail.

twoodfin 7mo ago
Why did the phone provider sell to a private equity firm?
- lobf 7mo ago
  for the money presumably? This questions feels like you're actually making a cryptic statement but I don't understand what it is.
  - twoodfin 7mo ago
    Usually companies that have a fantastic, growing business model don’t sell to PE. I also don’t like it when a money-losing business stops giving me below-market pricing.
    - athrowaway3z 7mo ago
      - Phone subscriptions is a price competitive market in most places, not some growth-hacking industry. - Not every business has a growth story. Not every business needs a growth story. PE can offer a business owner more than they expect it to make by: - being ignorant about the business (Which we are seeing repeatedly) - intend to run it hot to juice the numbers and resell it for their profit.

sharts 7mo ago

Why would banks take control? If they had that skillset or interest they wouldn't be lending to middle men to begin with.