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 It's come out that the Blackstone Group LP (NYSE:BX) has written down the equity value of the loans it bought from Deutsche Bank AG last year all the way to zero. But considering the state of the debt markets, that's probably true for nearly every buyout shop that used leverage to buy discounted loan portfolios.When the banks started unloading leveraged debt to the private equity firms for a song last year, they didn't miss the chance to make some extra fees and provide the LBO shops with some more leverage to buy the roughly $300 billion overhang in leveraged loan commitments that were clogging up their balance sheets. At the time of the deal, Deutsche Bank was reportedly trying to sell $5 billion of debt at 85% of par to Blackstone. So while Blackstone and its peers bought the debt at a discount, they still leveraged their equity 3-to-1 or 4-to-1 to do it. Now with that money coming senior to the private equity firm's equity commitment, added to the magic of mark-to-market accounting -- and viola! -- the equity is worth zero across the board for nearly all the debt portfolios purchased since the leverage gets paid off first. The write-down to zero is not such a terrible thing for the buyout shops, though, since they likely have the time and resources to wait out the storm and see the majority of that debt pay them a nice fat profit when the recession is over. - George White See Bloomberg story on Blackstone write-downs CategoriesPrivate capital video
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