Deutsche Bank and Credit Suisse settled a lawsuit for $1.73 billion for allegedly intefering in the failed leveraged buyout of Huntsman Corp.
Deutsche Bank and Credit Suisse withdrew $15 billion of funding for the leveraged buyout of Huntsman Corp. by Apollo Management when the U.S. economic decline took hold, according to a report by Bloomberg. The banks were concerned the new company would be insolvent while Huntsman was reassured by “rock solid” financial statements of Apollo.
Each bank has agreed in the settlement to pay $316 million immediately and an additional $550 million each in senior debt over seven years.
Generally, banks can be expected to write these deals more carefully in the future, reported Bloomberg. Other investment banks were left with similar private equity obligations totaling $230 billion in August 2007. By December 2008, $105 billion worth of deals had collapsed. In addition, boards of directors will likely be more wary of leveraged buyout offers and their risks.
Private equity firms are learning to adapt in the new environment. Several are using their investor’s funds to purchase equity stakes in public companies. Others are investing in distressed banks. According to Bloomberg data, the total nominal value of leveraged loans by banks is down 81 percent from 2007. The nominal value of announced private equity transactions are down 60 percent over the same period.