Blackstone’s LBO financing package for Equity Office includes a staggering $30bn of debt, notes Lex. Not far off the amount the company currently carries on its balance sheet.
But Equity Office’s bonds actually rallied after the giant deal was announced. The explanation is that most of the existing debt stands to be repaid – so investors might even get a small premium for their trouble.
Reits were conceived in the shadow of a traumatic commercial property meltdown – one result of the financial conservatism deliberately built in is that Equity Office and some others have terms in their bonds that protect investors against such things as change of control or massive additional leverage.
In today’s world of easy money, such protections are viewed by some as unnecessary or old-fashioned – but given the tidal wave of private equity-driven LBOs, investors may be wise to push for them to be brought back.