Private equity accused of ‘cashing in’ UK government loans

The UK government has been slammed for letting private equity groups “cash in” on state-backed coronavirus loans. Darren Jones, chair of the House of Commons’ business, energy and industrial strategy committee, said that he had been concerned over the “abuse” of some of the government’s support.

The MP expressed discomfort over a relaxation of rules for the coronavirus business interruption loan schemes last month. He pointed that private-equity owned firms could use taxpayer money to pay off the debt used to buy them while owners sit “on mountains of cash”.

“If private equity firms are receiving this public money then there should be some conditionality around their commitment to protecting jobs and helping UK businesses get through this pandemic,” Jones argued.

His statement is a reaction to a letter sent on 10 October by Alok Sharma, the business secretary, about the issue. Sharma said after opening certain government-backed Covid-19 loan schemes to some private equity-owned companies that were previously blocked, the government “does not propose to introduce further conditionalities”.

The UK’s private equity industry has been fighting for months for the loosening of the rules in order to gain access to publicly-funded loans. At the end of September, it was successful.

Michael Moore, director-general of the British Private Equity & Venture Capital Association, which has been lobbying for the reform, said in August the industry is only asking for equal treatment.

“We are asking for the principle that [private equity-owned] businesses that were creditworthy and successful before the health disaster should be able to access the same facilities as other businesses,” Moore noted.

David Whyte, a professor of socio-legal studies at the University of Liverpool, said private equity capital ends up not being reinvested in the economy, but in a “huge pile of cash, waiting for the next leveraged buyout.”

“The emergency funds committed by the Treasury to dealing with Covid-19 are in many ways unprecedented. For this reason, they must be more prudently used to build the long-term jobs that we need in a truly sustainable economy,” he noted in a recent commentary.

The industry, which has invested heavily in the battered leisure, hospitality and retail sectors in recent years, is now struggling to shore up portfolio companies amid the pandemic. Job losses, closures and restructurings are piling up.

Recent examples include Pizza Express, which announced the Chinese PE firm Hony Capital had agreed to a restructuring deal, resulting in 73 stores closures and 1,100 job losses; French cuisine chain Bistrot Pierre, formerly backed by Livingbridge, was sold out of administration in a pre-pack deal; and struggling group Byron Burger, which was owned by Three Hills Capital Partners, had a stake sold to Calverton UK in July.

“Ministers must learn lessons from the earlier rounds of support before wasting more taxpayer money,” MP Darren Jones added.

Source: Private Equity News