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Private equity and leveraged finance markets

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  • Bank for International Settlements

Abstract

The credit market turmoil since mid-2007 has substantially affected the terms and conditions of funding in leveraged finance markets. Rising investor risk aversion, growing pressure on bank balance sheets and a loss of confidence in structured credit products have sharply reduced demand for leveraged loans. The materialisation of warehouse risks from failed leveraged loan syndications contributed to unwanted expansion of bank balance sheets and has affected credit supply. The knock-on effects from deteriorating conditions in leveraged loan markets have also affected private equity financing. Against the background of these developments, the working group report on private equity and leveraged finance markets under the chairmanship of Henk Brouwer of the Netherlands Bank addresses two broad questions. First, what have been the important trends during the period of rapid growth in the markets for leveraged finance, private equity and leveraged buyouts, and how has market growth affected incentives and corporate structures? Second, how have leveraged finance markets performed since mid-2007, which risks have surfaced, and what preliminary lessons can be drawn for financial stability?.

Suggested Citation

  • Bank for International Settlements, 2008. "Private equity and leveraged finance markets," CGFS Papers, Bank for International Settlements, number 30.
    • Handle: RePEc:bis:biscgf:30
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    References listed on IDEAS

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    1. Steven Kaplan & Antoinette Schoar, 2003. "Private Equity Performance: Returns, Persistence and Capital," NBER Working Papers 9807, National Bureau of Economic Research, Inc.
    2. Steven N. Kaplan & Antoinette Schoar, 2005. "Private Equity Performance: Returns, Persistence, and Capital Flows," Journal of Finance, American Finance Association, vol. 60(4), pages 1791-1823, August.
    3. Cao, Jerry & Lerner, Josh, 2009. "The performance of reverse leveraged buyouts," Journal of Financial Economics, Elsevier, vol. 91(2), pages 139-157, February.
    4. Bank for International Settlements, 2003. "Credit risk transfer," CGFS Papers, Bank for International Settlements, number 20.
    5. Adrian Blundell-Wignall, 2007. "The Private Equity Boom: Causes and Policy Issues," Financial Market Trends, OECD Publishing, vol. 2007(1), pages 59-86.
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    Cited by:

    1. Roberto Piazza, 2015. "Financial innovation and risk: the role of information," Annals of Finance, Springer, vol. 11(3), pages 477-502, November.
    2. Mr. Roberto Piazza, 2010. "Financial Innovation and Risk, the Role of Information," IMF Working Papers 2010/266, International Monetary Fund.

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