Private Equity: The Bankruptcies Begin

Just how smart is Stephen Feinberg, the principal of Cerberus

Capital? Portfolio’s Daniel Roth tells


On Wall Street, the C.E.O. of Cerberus Capital Management, an investment

firm with $26 billion in assets under management, has long been admired. (“You

probably think you’re smart,” says one former employee. “Now

take your brain and mine, take them to the 28th power, and you have Steve


Wow. A brain to the 28th power? Is that a bit like a 25-standard-deviation

event? I only ask because Mr Feinberg might not be feeling so particularly

clever this morning, after Aegis Mortgage Corporation filed

for bankruptcy, owing more than $600 million to its creditors. Among those

creditors is Madeleine LLC, owed $178 million in unsecured debt and very unlikely

to see any of it.

Madeleine is a part of the Cerberus empire, it turns out, and owns 81% of Aegis.

I don’t know how much money Feinberg paid when he bought Aegis, but all that

is now surely gone as well.

But let’s not concentrate too much on the Feinberg-specific schadenfreude and

miss the bigger story, which is this: companies owned by private-equity shops

are defaulting, now. And those shops include big names like Cerberus.

Lenders have gotten a little starry-eyed in recent years, as private-equity

principals willing to pay eight-figure sums in M&A advisory fees have persuaded

them to fork over billions of dollars to overleveraged companies. I’m sure the

bankers told themselves that these private-equity types make lots and lots of

money – and that the only way they can continue to make money is if their

portfolio companies don’t do things like file for bankruptcy.

Well, so much for that theory.

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