14.12 By some estimates, as many as one fourth of the LBOs between 1987 and 1990 (the first mega-LBO boom) went bankrupt. The data in Table 14.6 illustrate the extent of the leverage associated with the largest completed LBOs of 2006 and 2007 (the most recent mega-LBO boom). Equity Office Properties and Alltel have been sold.

Use the data given in Table 14.7 to calculate the equity contribution made by the buyout firms as a percent of enterprise value and the dollar value of their equity contribution. What other factors would you want to know in evaluating the likelihood that these LBOs will end up in bankruptcy? (Appendix)

Target Bidder(s) Enterprise value (EV) Net debt Equity Value of equity Interest coveragea ($ billion) % of EV % of EV ($ billion) Ratio TXU KKR, TPG, Goldman Sachs 43.8 89.5 ? ? 1.0 Equity Office Properties Blackstone 38.9 Sold NA NA Sold HCA Bain, KKR, Merrill Lynch 32.7 82.4 ? ? 1.6 Alltel TPG, Goldman Sachs 27.9 Sold NA NA Sold First Data KKR 27.7 79.2 ? ? 1.0 Harrah’s Entertainment TPG, Apollo 27.4 83.7 ? ? 0.8 Hilton Hotels Blackstone 25.8 75.9 ? ? 1.1 Alliance Boots KKR 20.8 83.5 ? ? 1.1 Freescale Semiconductor Blackstone, Permira, Carlyle, TPG 17.6 49.6 ? ? 1.6 Intelsat BC Partners 16.4 88.9 ? ? 1.0 Average 27.9 81 ? ? 1.0