Blackstone says financing, deals will return

Timothy Coleman, Blackstone Group Senior Managing Director and Co-Head of the Restructuring and Reorganization, speaks at the Reuters Global Hedge Fund and Private Equity Summit in New York, March 24, 2009.

NEW YORK (Reuters) - The leveraged buyout business will come back, and lending by banks will return, a senior executive at private equity firm Blackstone Group said on Tuesday.

"Banks have to make money," said Timothy Coleman, co-head of Blackstone's Restructuring and Reorganization Advisory unit in New York.

"They take money in, they lend it out and they give it back," he said at the Reuters Private Equity and Hedge Funds Summit in New York. "That's the core business."

Coleman cited predictions, made at the end of the last leveraged buyout boom in the late 1980s and early 1990s, that LBOs were gone forever.

"The predictions -- that (it) was over for good -- were bigger than today," he said. "We know that didn't turn out to be true."

Leverage won't return to the same levels as before, he said, but "the idea that it's over and we'll never see another levered deal is not good thinking. I don't know when, but it will be back."

Private equity firms raise money from investors such as pension funds to invest in buying companies, which they aim to improve and either sell or take public a few years later.

During the 2005-07 boom, credit was easy to get, and buyout firms bought scores of companies, piling increasingly high debt levels on their acquisitions.

That ended abruptly when the credit crunch and escalating global financial crisis closed easy access to financing.

A looming problem for the industry is refinancing debt of companies bought during the boom. A large part is due to mature in 2012-14.

Companies are very focused on their debt structures, maturity structures and covenants, Coleman said, adding: "But I find most banks are not looking for an opportunity to seize the company or drive it into bankruptcy."

Coleman does see more bankruptcy filings ahead.

"This cycle is very different from many other cycles," he said. "It continues to be credit-driven, which means that companies have a very hard time getting financing.

"The cycle of the economy does not seem to be abating."

Coleman also expects to see many exchange offers, in which a company asks bondholders to exchange existing debt for longer-dated new bonds or equity, to avoid running out of cash.

(Additional reporting by Emily Chasan; Editing by Lisa Von Ahn)