Cheap debt is the fuel for the private equity boom. So, with rising interest rates and competitive pricing on buyouts, are we seeing problems starting to brew?Perhaps so. According to a report from the Guardian Unlimited, the CEO of Royal Bank of Scotland, Sir Fred Goodwin, said banks need to be more cautious.
In a typical buyout deal, a group of banks usually syndicate buyout debt load to many players. It's a way to minimize the risk exposure.
But Goodwin thinks this is a bad idea. If banks want to get rid of the debt, shouldn't this be a red flag to investors? "We shouldn't do deals unless we were comfortable holding the credit ourselves. I think the market is getting quite toppish," said Sir Fred.
I think he has a good point.
The irony, of course, is that RBS is trying to buyout Amro. It's a mega deal that will involve lots of debt.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
