Private equity giants urge companies they own to tap credit as markets melt down

Private equity titans Blackstone Group Inc. and Carlyle Group Inc. are sending a message to the companies they control: Do whatever it takes to stave off a credit crunch.

At Carlyle, the measures aren’t widespread, other people said. The firm has been having broad discussions with management teams at portfolio companies and recommended drawing credit lines in certain instances, according to people familiar with the matter. Decisions are based on industries, regions and other factors, the people said.The moves — along with similar plans by Hilton Worldwide Holdings Inc., Wynn Resorts Ltd. and Boeing Co.

A sudden and sustained increase in companies tapping credit lines could eventually strain banks if conditions become so dire that borrowers won’t be able to meet their obligations.Lenders offer revolving credit lines to strengthen relationships with companies and don’t typically intend for them to be drawn upon en masse. In normal times, revolvers serve as the corporate equivalent of credit cards, giving companies room to borrow as needed and repay when shortfalls ease.

Oil and natural gas companies can come under particular funding stress when prices fall. That’s because their credit lines are periodically updated based on market prices, potentially motivating companies to tap them early.

Source: News Formal (newsformal.com)

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