Carlyle founder worries about leverage party hangover

Since we are “on” this topic, here it is from the horse’s mouth (via FT Alphaville). And won’t the boss justifiably hate that his emails are being leaked as fast as he sends them:

Carlyle’s Conway warns on risky LBOs

William Conway, the Carlyle founder who is regarded as one of global private equity’s smartest investors, has warned his colleagues about the “very risky credit decisions” taken to finance buy-out deals, reports the FT.

Conway is regarded as Carlyle’s investment guru and weighs in on nearly all important investment decisions.

In a leaked memo, he warns that while he does not expect the era of cheap debt to disappear soon, “The longer it lasts, the worse it will be when it ends.”

“Frankly, there is so much liquidity in the world financial system that lenders are making very risky credit decisions. This debt has enabled us to do transactions that were previously unimaginable, and has resulted in generally higher exit multiples than entry multiples,” he says in the memo, the existence of which was confirmed Friday by Carlyle.

Conway highlighted a number of “unimaginable” deals, including some undertaken by his own firm, such as the $15bn (£7.7bn) buy-out of Hertz, the car rental group, and Freescale, the US semiconductor business, acquired by a buy-out consortium for nearly $18bn.

“If the excess liquidity ended tomorrow, I would want as much flexibility as possible — are our [loan] covenants loose enough? Can we draw down on our revolving credit loan facilities?” asked Conway.

FT Alphaville hopes other fund managers are also asking themselves those questions.”

We couldn’t have said it better ourselves. Thanks to the blog reader who knew this was a topic dear to our kind hearts, and forwared along the link.

MRM