Private credit bosses hit back at ‘misinformation’ over First Brands collapse

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By Tommy Reggiori Wilkes

LONDON (Reuters) -Blackstone Apollo and Ares had no exposure to U.S. companies First Brands and Tricolor at the time of their bankruptcies, executives said on Wednesday, arguing that the private credit industry had been unfairly linked to the collapses.

The failure of auto parts supplier First Brands and car dealership Tricolor rattled debt markets and put the fast-growing private credit industry under the spotlight.

Several banks including U.S. Jefferies have reported exposure to First Brands, while the UK’s Barclays said last week it had taken a 110 million pound charge on the collapse of Tricolor.

Apollo Global Management’s co-head of European credit, Tristram Leach, said First Brands was “predominantly financed” by public market lending, loans which are typically arranged by banks.

Blair Jacobson, co-president at Ares Management, said only 2% of First Brands’ nearly $12 billion balance sheet was linked to private credit.

“There has been a lot of misinformation on this credit,” Daniel Leiter, a senior managing director at Blackstone, told a British House of Lords committee looking into the rise of private markets.

Jacobson told the lawmakers that if Ares had considered backing either company “we wouldn’t actually get very far” because First Brands was cyclical and exposed to a weak consumer, while Tricolor had a low-quality customer base.

REGULATORS TAKE CLOSER LOOK AT PRIVATE CREDIT

Bank of England Governor Andrew Bailey said last week the bank was planning a more detailed probe into the collapses.

Bailey said that there were parallels with the early stages of the global financial crisis and that the BoE planned to run a “stress test” with the private equity and credit industry.

Other supervisors such as the European Central Bank also want to improve visibility of private credit and other parts of the so-called ‘shadow banking’ sector, fearing that risks may be building about which they have less knowledge.

The private credit executives on Wednesday pushed back when asked if the sector’s huge growth posed broader risks.

Blackstone’s Leiter said private credit was fundamentally safer than bank funding, which risked wider contagion, and said traditional lenders often operate with 10 times the leverage of a private credit fund.

The CEO of Standard Chartered bank, Bill Winters, made a similar point earlier this week, saying regulators should be more concerned about systemic banks than private credit.

Leach at Apollo was also asked by the UK lawmakers on Wednesday about media reports that his firm had taken a short position – or bet against – First Brands’ debt, but he did not answer the question.

(Reporting by Tommy Reggiori Wilkes; Editing by Iain Withers and Elaine Hardcastle)