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points by hedgehog 2 days ago | 0 comments

As I understand it the situation is much worse than that, the existing debt is floating rate so in some situations can put previously sustainable companies into the red. This of course also affects their ability to refinance so it can spiral from there unless they take drastic measures (which still might not be enough).

[–] lokar 2 days ago

I think a lot is fixed, but for a fairly short term. So you have roll the debt over (at the new market rates) every 5 to 10 years.

[–] peezd 2 days ago

Yeah, it's rarely not fixed, and a lot was tied to the historic expectation of the investment being at most ~5-7 years.

Closely related, you can read about the PE Zombie funds that cover a lot of this debt.

[–] chollida1 2 days ago

> Yeah, it's rarely not fixed, and a lot was tied to the historic expectation of the investment being at most ~5-7 years.

You've got it reversed, the debt BDC's and PC firms write is usually floating rate based off SOFR. That' s why they do so well in rising rate environments.

Now they often borrow at fixed rates by issuing bonds or preferred shares that pay a fixed rate so falling rates has to opposite effect on them.

[–] lesuorac 2 days ago

I mean if your borrowers go bankrupt then its bad for you.

[–] hedgehog 2 days ago

My understanding is that almost all deals are built on floating rate debt, with some hedging. I don't work in PE though, maybe someone here knows the market in more detail.