Financial Engineering is Alive and Well - For Now

Over the past two years, limited partners around the world have received back an unheard-of amount of cash from general partners. A big chunk of these distributions have been the result of exits facilitated in the M&A market. But an equally significant but hard-to-pinpoint amount of the recent returns have come from techniques that, for lack of a better term, are called financial engineering.

“I see ever more borrower-favourable terms being secured in the European market, which has been an enabling factor for a lot of the recapitalisation activity going on,” says Markland.

Private equity firms have found it "tempting when being offered money, and you realize that you can refinance existing borrowings of your portfolio companies on more favourable negotiated terms than you were able to as recently as 18 months ago, and in greater quantities," says Markland.

This article appeared in its entirety in the February 2006 edition of Private Equity International.