Blackstone: $5 bln limit for LBO bank financing

By Megan Davies

NEW YORK (Reuters) - Private equity firm Blackstone Group LP's (BX.N) chief operating officer said on Tuesday that the limit on bank financing for leveraged buyouts was about $5 billion.

But COO Tony James said there were multiple opportunities to invest despite the market turmoil and the limit on financing, adding the company has had a very active 12 months, investing $8.7 billion in 27 deals since the credit meltdown.

"People say you can't do leveraged buyouts," said James. "That's not correct. We are getting bank financing for LBOs (leveraged buyouts), but we're not getting bank financing for deals over about $5 billion in size."

He said the current volatile market conditions were ideal times for Blackstone to invest.

"One could be forgiven for thinking this is a hostile environment for Blackstone," said James, speaking at a Lehman Brothers conference that was webcast. "I don't agree at all. I think it's a fantastic environment. Turmoil, discontinuity in the market and scarce capital are absolutely ideal forces for our businesses."

Blackstone has taken part in some of the largest leveraged buyouts ever, such as the $23 billion purchase of Equity Office Properties Trust, but has also done numerous smaller buyouts.

"The public perception is that Blackstone just does large buyouts, but it's not true," said James.

The credit crunch last summer froze the debt markets for large leveraged buyouts, and private equity firms have instead been focusing on smaller deals, minority investments, and investing in debt or looking overseas.

Blackstone has invested heavily in real estate, and James said in that business, it had been selling rather than buying assets, and was cautious about making new investments.

He said Blackstone saw opportunities to invest in distressed real estate, which he said was still in the early part of the cycle. "We think there will be a lot more. This will become a growing part of our activity," he said.

Blackstone has also been aggressively buying leveraged loans of quality companies, he said, which was a typically at a price of 80-85 cents.

Blackstone went public last year, just before the credit crunch.

Asked by a conference attendee about shareholder distributions, James said that public shareholders were guaranteed to be paid yearly distributions of $1.20 a share up to the end of 2009.

But he said in this environment, "don't count on any more."

He added that after 2009, "... We reserve the right and probably will, think about retaining a little earnings somewhere in there."

Blackstone shares fell 77 cents, or 4.6 percent, to $16.03 Tuesday on the New York Stock Exchange. The 52-week high is $29.75, set on October 2007.

(Reporting by Megan Davies; editing by Jeffrey Benkoe)