The chief executive of Brookfield’s private equity business, Cyrus Madon, has given an insight into how the giant firm is approaching leverage in a low-cost financing environment.
“What we’re focused on is putting non-recourse financing in place, long-term maturities, little-to-no financial maintenance covenants whatsoever, flexible financing,” Madon said during the firm’s quarterly earnings call on 31 July, in response to an analyst question.
“If we can put that in place and the business can readily withstand the financing costs, we’ll do that all day long as much as we can.”
“If we can put that in place and the business can readily withstand the financing costs, we’ll do that all day long as much as we can.”
Cyrus Madon
Where businesses have more variability in cashflow and higher levels of financing might lead to lenders requiring more financial covenants, then the firm “will throttle back the amount of financing on that type of business,” Madon added.
When questioned about whether the low cost of financing was having an impact on the firm’s approach to acquisitions – and whether competition for deals was getting fiercer due to the availability of debt – Madon said: “We’ve been in a favourable financing environment for many, many years. I don’t think anything’s changed today as opposed to five years ago, in respect of competition for deals that are driven purely by the financing environment.”
Covenant-lite loans comprise 80 percent of the Credit Suisse Leveraged Loan Index, which tracks broadly syndicated leveraged loans to speculative grade issuers, two researchers from ratings business Fitch wrote in sister publication Private Debt Investor in July.
If you do not receive this within five minutes, please try to sign in again. If the problem persists, please email: