Weaker companies 'facing collapse when rates rise'
Friday 28 June 2013
Private-equity boss Jon Moulton today forecast that many weak companies that are “staggering along” because of low borrowing costs are facing collapse as interest rates are starting to rise.
Moulton, whose investments include Reader’s Digest, double-glazing firm Everest and fashion brand Jaeger, said the yield on 10-year gilts had already risen 50 basis points, or 0.5%, in the past six weeks.
“The Bank of England can’t hold interest rates at close to zero if the rest of the world thinks gilts should be at some substantial level like 8%,” said Moulton.
“At some point interest rates will rise quite sharply. It won’t be necessarily bad news. Very low interest rates mean you don’t sort out the weaker parts of the economy.”
Despite five years of on-off recession, he said the number of companies that have been through a restructuring is “probably a third of the mid-1990s” because of low rates.
Moulton is behind private-equity firm Better Capital, whose 2009 investment fund has increased 42% in value and is now worth £307.9 million.
Better Capital specialises in buying loss-making companies and turning them around.
“We’re not asset-strippers,” he said, noting Jaeger is spending £1.8 million refurbishing its flagship Regent Street store.
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