In the last twelve months, I have written numerous articles about private equity firms and about how they excessively use leveraged loans for the companies that they back. Why do I care? Because when very leveraged companies fear defaulting on those loans and/or actually default, they fire people, who mostly had no power to make decisions about whether their companies should be leveraged. Private equity executives privatize their enriching gains, but socialize the losses. That socialism means that we the taxpayers collectively have to support the unemployed.
Last October, even before anyone knew that Covid-19 was headed our way distressed ratings for private-equity owned firms rose significantly. Hence, private equity firms cannot just blame Covid-19 for rising downgrades and defaults. That same month I wrote two articles about the adverse effects that private equity has had on the U.S. economy, especially when it comes to causing unemployment at many of their companies. And in April, I wrote that “Default rates are likely to rise sharply in the months ahead as the Covid-19 economic crisis intensifies, especially for private equity-backed family companies that are very leveraged.”