By failing to appreciate just how much central banks would jack up rates, many private equity firms opted against hedging arrangements that could have shielded companies saddled with $3 trillion in floating-rate debt from rising interest costs, that in some cases, doubled or more. For much of the past decade, those hedges cost next to nothing.
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Whatever the precise number, this much is clear: The consequences of rising rates for hundreds, if not thousands, of companies could be crippling, and the fallout widespread. Not only for investors, who face deep losses, or workers, who stand to lose jobs, but also the global economy, which could be upended if corporate defaults pile up.
Source: Private Equity Firms Exposed by Unhedged Risk, Interest Rates Surge – Bloomberg
