UK accused of letting private equity ‘cash in’ on loans

The government has been accused of letting private equity groups “cash in” on state-backed coronavirus loans, by allowing the companies that they own to use the funding to cover the costs of the large debts used to buy them.

In September, ministers loosened the rules around government-guaranteed loans, making it easier for companies laden with debts as part of their takeover by private equity groups to secure funding to survive the Covid-19 pandemic.

Under the leveraged buyout model used by the private equity industry, the companies they buy take on the debts used for the acquisitions, and become responsible for repaying the borrowings and the interest due on them.

Darren Jones, Labour chair of the House of Commons business, energy and industrial strategy committee, said the government’s decision last month to give private equity-owned groups easier access to loans backstopped by the taxpayer could amount to “allowing private equity owners to cash in while, in some cases, they sit on mountains of cash”.

Mr Jones, whose committee scrutinises decisions made by the business department, said he was concerned that state-backed loans might be used by private equity-owned companies to repay their takeover debts.

“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,” he said. 

Mr Jones was speaking after he published a letter from business secretary Alok Sharma about the issue.

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Mr Sharma said in the letter that, 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”. 

All businesses applying for support are subject to restrictions on dividends, and other shareholder and management payments, added Mr Sharma.

The state-backed loans “are designed to support [small and medium-sized enterprises] during the coronavirus outbreak”, said a spokesman for the British Business Bank, the state-owned organisation that administers the government-guaranteed loan schemes.

“Whilst management buyouts are not excluded, the facility must be for business purposes and must provide an economic benefit to the business.”

Buyout groups have been lobbying for months to secure easier access to the government’s coronavirus loan schemes, saying EU state-aid rules effectively stopped the companies they owned from obtaining support that was available to rival businesses.

Private equity groups “are very conscious of the eligibility criteria” for the state-backed loans, said a spokesman for the British Private Equity and Venture Capital Association, a lobby group.

“All recipients appreciate the nature of the support being provided and the necessary conditions which the government has applied.” 

The private equity industry has invested in some of the sectors hardest-hit by the pandemic, including the events and hospitality industries.

The Treasury said its loan schemes had provided a lifeline to thousands of businesses across the UK.

“We announced in May that firms taking out large loans must restrict dividends and senior pay, so that funding provided is prioritised for protecting jobs and keeping firms operational,” it added.

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Meanwhile, Mr Jones questioned why the government had not yet published the names of companies that have borrowed more than €100,000 in state-backed loans, including through the future fund, which offers convertible debt to start-ups.

MPs and transparency campaigners have been calling on the Treasury to shed more light on who has obtained loans.

However, officials are still not clear about what exactly they are required to publish, said two people briefed on the matter.

Small business minister Paul Scully last week said the “earliest possible deadline for publishing details . . . would be 23 March 2021”.


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