The bankruptcies of Revco and Federated heralded the end of the 1980s buyout boom. Traders and lenders are starting to wonder which of the current LBO crop will become the busted bellwether of the next downturn. One hint: The guy who bailed out Revco two decades ago is backing what appears to be today's biggest potential time-bomb.
Of course, when confronted with parallels between the bloody end of the 1980s boom and today's larger binge, deal makers tick off how things have changed. Deals, they say, have less leverage, and are subject to fewer restrictive debt provisions.
That's true -- up to a point. But attempts by buyout shops to wriggle out of deals from SLM (Sallie Mae) to United Rentals show they realized they were overpaying, much like their 1980s predecessors. And the shutdown of the junk market in 1989 looks like a smaller version of today's global credit crunch.
It is difficult to pick the next Revco or Federated, though not for lack of choice. Cerberus Capital's Chrysler faces declining demand for its iffy product line and is selling assets to raise cash. Lenders have twice snubbed a $10 billion loan supporting its buyout. Blackstone Group's Freescale Semiconductor is highly leveraged, and struggling Motorola remains one of the cyclical chip business's biggest customers.