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Private Equity Pain

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So, like homeowners with an adjustable rate mortgage that just went up, some of private equity's titans are facing a huge squeeze. And that is coming at the same time consumers are staying home with their wallets closed.

Already this year, big retailers backed by private equity, like Linens 'n Things, Mervyn's and Steve & Barry's, have filed for bankruptcy.

Analysts expect an even broader array of companies backed by private equity — including resorts like Harrah's Entertainment and lenders like GMAC, the financing arm of General Motors — to face even more pressure as profits shrivel and creditors come knocking.

“There's absolutely going to be a lot of pain to go around,” said Josh Lerner, a professor of investment banking at Harvard Business School. “The big question is how apocalyptic it will be.”

Private equity firms, which are lightly regulated, use investors' money to buy undervalued public companies and take them private. The difficulty of companies that have been acquired by private equity firms to get new credit could have enormous implications for the economy.

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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