Scary headline for banks. Blackstone, others, tell portfolio companies to draw down their revolvers. $BX $KKR $BAC $WFC $JPM

Yesterday, not too long after Boeing announced it fully drew its revolver (see what that means here), we are now hearing that major private equity firms are telling their portfolio companies to fully draw down on their revolvers.

It isn’t just Blackstone, it also is Carlyle, KKR and HIG. Why is this a scary headline? These firms are huge and are likely invested in hundreds of companies each of varying size. While drawing on their revolver may provide liquidity for them, it makes banks put capital to work all at once… This is similar to a run on a bank, except in this case it isn’t deposits trying to exit, its borrowers calling their capital.

All that being said, banks are extremely well capitalized this go around vs. 2008. And they must undergo significant stress testing. I think banks will be OK through this, but it shows how a virus can spread into something even more viral and squeeze the financial system. You could also see the Fed and ECB backstop again.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.