Lee: plenty of debt for smaller deals

Private equity icon Thomas H. Lee has said the credit crisis is ‘not a cash crisis’ but a crisis of confidence that will primarily affect the availability of debt financing for private equity deals valued at more than $1 billion.

Thomas H. Lee has joined the chorus of private equity executives proclaiming that buyout deals valued at less than $1 billion aren’t jeapordised by credit market turbulence. Similar remarks have been made in recent months by Tony James, president of The Blackstone Group, and Tom Lamb, co-head of Barclays Private Equity.

The founder of Lee Equity Partners, as well as the similarly named buyout firm Thomas H. Lee Equity Partners (with which he is no longer associated), Lee told a crowd of New York lawyers Thursday that there is still a huge amount of global liquidity and the US subprime mortgage meltdown has not resulted in a “cash crisis”, but a “crisis of confidence”.

Tom Lee

“There’s a huge rat in the snake, meaning that there’s a lot of LBO loans waiting to come out,” Lee said, speaking at Cardozo law school's alumni association dinner. “I would say there’s plenty of money around for the small- to mid-cap [deals] – $1 billion and down can borrow a lot of money.”
But larger deals may have trouble with financing as investment banks’ boards “are waiting to see if they can clear that $400 billion” backlog of unsynidcated buyout loans, he said, estimating that backlog would likely take six to eight months to clear.

“Whether the boards are going to let the banks go back and do the deals they way we have seen, we’ll have to see,” Lee said. “I’m sure they’ll be back at some point, but it’s not going to be immediately.”

Lee did not reference his own private equity firm's fundraising or deals, and was introduced only as the president of Thomas H. Lee Capital.  Lee Equity Partners, the buyout firm he founded last year, makes growth investments of between $100 million and $500 million, mostly in the US.

It has yet to announce a fund close, though the firm said last year that it had “interim financing” enabling it to begin investing at once. In July, the firm announced its second deal, the $395 million buyout of teen fashion retailer Deb Shops.