Private equity firms may need to inject some 450 billion euros (384 billion pounds) of new equity into their portfolio companies as parsimonious banks cut back on money they will lend against these assets, buyout executive Guy Hands said on Wednesday.
Hands, who has been in the spotlight for the collapse of his 4 billion pound EMI deal at the height of the buyout boom in 2007, said that some 3 trillion euros worth of leveraged deals would need to be refinanced between 2013 and 2015.
These refinancings will require the investment of substantially more equity, he said. Hands said loan-to-value (LTV) ratios for bank loans were likely to be closer to 60 to 70 percent compared with 85 percent at the height of the buyout boom.
On this 3 trillion of leveraged deals, if 15 percent more equity is required, then 450 billion of new equity will be needed, he said in a speech at the annual Superinvestor conference in Paris.
It was unclear from his speech whether the figure included only private equity deals or also real estate transactions. A spokesman for Hands did not immediately return a phone call seeking comment.
That means that private equity funds will have to tap investors for more cash and will have less to spend on new acquisitions at a time when the market will be flooded with potential buyout opportunities, Hands said.
Those will include assets being sold on the cheap by banks under pressure to shrink their balance sheets, governmental and quasi-governmental assets, private equity portfolio companies and divisions of large companies seeking to reduce their debts.
By 2013, there will be the biggest mismatch between demand and supply that I think I will have seen in our lifetimes, he said. He added that he saw an opportunity for those investors with funds to find extremely good values, values at least as good as they were back in 93, 94.
Hands' buyout house Terra Firma is expected to start officially marketing its latest fund in early 2012, a person familiar with the matter told Reuters earlier this year.
He has told investors he expects Terra Firma's next fund to be 2 billion to 3 billion euros in size, echoing views that many funds will need to shrink to match the environment.
(Reporting By Christian Plumb. Editing by Jane Merriman)