The trend towards private equity companies buying at a discount the debt of the companies they took private may not be illegal but it raises the concern that during a situation that where other creditors are pressing for a debt renegotiation, these private equity groups with large debt positions could influence the talks to protect their equity.
Justifications
- prevent fire-sale of debt to hostile hedge funds
Concerns
- Usage of knowledge attained as bidders or shareholders to asess the true value of the debt.
Mitigating factors?
- Chinese walls between debt funds and buy-out funds in PE industry?
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