NOTHING NEW UNDER THE SUN

June 4, 2025

43 min episode · 2 min read

James H.M. Scraegan

Episode

43 min

Read time

2 min

AI-Generated Summary

Published Jan 2, 2026

Key Takeaways

✓Interest Rate Impact: Companies leveraged at six times EBITDA in 2021 when SOFR was 0.05% now face SOFR at 4.33%, consuming an extra 26% of EBITDA for debt service, creating widespread capital structure stress across private equity portfolios.
✓Private Equity Backup: The 29,000 private equity portfolio companies represent a record high with IPO markets largely closed to exits. University endowments now sell secondary stakes not for operations but to fund capital commitments to other PE funds.
✓Fixed Charge Coverage Decline: Average fixed charge coverage ratios for private equity companies have fallen to approximately one, with 40% of PE companies generating negative free cash flow in 2024, signaling widespread restructuring needs ahead without dramatic maturity wall.
✓Asset-Based Lending Advantage: Asset-based lending provides safer positioning than cash flow lending during elevated rate environments because underwriting focuses on liquidation value rather than EBITDA multiples, avoiding reliance on adjusted earnings metrics that mask underlying business weakness.

What It Covers

Bankruptcy lawyer James Scraegan discusses liability management exercises, private equity vulnerabilities, Trump's negotiating tactics, and restructuring opportunities as interest rates remain elevated while 29,000 private equity portfolio companies face liquidity challenges.

Key Questions Answered

•Interest Rate Impact: Companies leveraged at six times EBITDA in 2021 when SOFR was 0.05% now face SOFR at 4.33%, consuming an extra 26% of EBITDA for debt service, creating widespread capital structure stress across private equity portfolios.
•Private Equity Backup: The 29,000 private equity portfolio companies represent a record high with IPO markets largely closed to exits. University endowments now sell secondary stakes not for operations but to fund capital commitments to other PE funds.
•Fixed Charge Coverage Decline: Average fixed charge coverage ratios for private equity companies have fallen to approximately one, with 40% of PE companies generating negative free cash flow in 2024, signaling widespread restructuring needs ahead without dramatic maturity wall.
•Asset-Based Lending Advantage: Asset-based lending provides safer positioning than cash flow lending during elevated rate environments because underwriting focuses on liquidation value rather than EBITDA multiples, avoiding reliance on adjusted earnings metrics that mask underlying business weakness.

Notable Moment

Scraegan reveals Trump's negotiating pattern from the GM Building dispute: start with maximalist demands, create chaos and uncertainty, then settle for more than entitled to but less than initially demanded, a strategy now playing out with tariff policy.

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