Whereas Apollo is doing more lending that banks cannot, its business also faces challenges from how much less banks can lend to it for leveraged buyouts, thanks to post-crisis regulation in Washington.
The Treasury Department's Office of the Comptroller of the Currency and the Federal Reserve provided guidance to the firms they supervise in 2013, telling big banks to not provide private equity borrowers with excessive amounts of money to do deals. What they were trying to avoid are repeats of post-financial crisis disasters like TXU or Caesars, both bought by private equity investors and each levered to the gills, in terms of the debt each deal assumed (Both companies would go on to file for bankruptcy protection).
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And that means, now, that private equity firms can't borrow as much cash for big buyouts; instead, the debt-to-equity ratio for private equity firms like Apollo is closer to 50-50, Harris said. It wasn't always that way, especially in the years leading up to the financial crisis. Not being able to get debt might impact smaller private equity firms more; Apollo has $30 billion in funds it has raised to do deals.
Still, Harris happily hearkened back to his industry's headier days, when debt was easier to come across in the years leading up to the crisis.
"Literally every deal … was 80-20," Harris said during his presentation.