Blackstone cleans up in Ireland amid bank squeeze
Biggest bet is arrangement awarding firm 25% of Eircom for more favourable terms on debt burden
Blackstone came to fame as a buyout firm under chief executive Stephen Schwarzman and is now a financial colossus overseeing $265 billion. Photograph: Munshi Ahmed/Bloomberg
Bankers have been blanketing Ireland in search of cheap assets and lucrative deals, and few firms have been as aggressive as the Blackstone Group.
From snapping up hotels to advising the government on what to sell and when, Blackstone deal makers seem to be everywhere.
Yet the private equity giant’s biggest bet in the country has been one cooked up largely in the shadows: an unorthodox arrangement awarding Blackstone 25 per cent of telecoms giant, Eircom, in return for more favourable terms on its punishing debt burden. The deal is a vivid illustration of shadow banking, when private equity and hedge funds replace banks as the main creditors to companies.
And as far as Bennett J Goodman, the Blackstone executive who led that financing, sees it, that’s a good thing.
Companies are in trouble; they come to Blackstone because they can’t get a loan from a bank; a deal gets done and jobs are saved. He asks: What is so shadowy about that?
“What we do also helps improve the resilience of the financial system,” said Mr Goodman, a former junk bond specialist. “Why would you want to be dependent on just five banks?”
But being reliant on a financial outfit like Blackstone carries risks as well, not least in Ireland, a country undone by the excesses of bankers and where suspicions of the species run deep.
The firm’s ability to don such a variety of financial caps - adviser, investor and lender - has created a stir of sorts and politicians as well as investors have questioned Blackstone’s ability to avoid conflicts of interest.
Outside its complexity and daring, the Eircom deal also underscores how European banks, crippled by bad loans and regulatory restraints, are ceding ground to firms like Blackstone and others that can lend money like a bank but are not scrutinised as such.
In the last few years Mr Goodman’s team has been one of the more innovative financiers in Europe, securing outside-the-box lending arrangements with desperate borrowers in Spain, Germany and Britain as well as Ireland.
They are not the only ones of course: financiers such as Kohlberg Kravis Roberts & Company and the Fortress Investment Group are also big operators in Europe. But Mr Goodman’s unit, called GSO Capital Partners, has committed 25 per cent of its $65 billion in funds to Europe, making it one of the leaders.
And while the intricacies of each deal vary in complexity, one factor unites them: the promise of a big-time payday - with Eircom potentially becoming one of the more profitable.
Eircom’s default in 2012 was the largest in Irish history. Saddled with more than $5 billion in debt and suffering from intense competition, Eircom absorbed the full force of Ireland’s financial troubles in 2010 and 2011 and as the value of its loans plummeted on the secondary market, Blackstone began accumulating them at prices as low as 65 cent to the euro.