The private-equity industry has been a little-noticed beneficiary of the Federal Reserve’s efforts to combat the economic fallout of the coronavirus pandemic, as central bank support has spurred a surge in junk-bond issuance by buyout firms, the Wall Street Journal reported. The second quarter saw one of the highest-ever levels of junk-bond issuance by private-equity-backed companies, at more than $31 billion, according to Dealogic, a data tracker. It was the sixth-highest level for any quarter on record and the highest since 2014, according to Dealogic’s data. The boom in private-equity debt is largely a case of a rising tide lifting all boats. The Fed’s March 23 announcement that it would launch a bond-buying program spurred huge new debt issuance. This is true even in areas, like junk bonds, where the central bank has bought a relatively modest amount of debt. Most attention has been paid to the Fed’s corporate-bond-buying program, under which it has loaded up on debt from blue-chip companies like AT&T Inc., Apple Inc. and Verizon Communications Inc. The Fed has bought about $12 billion of corporate bonds and exchange-traded funds through the end of July, based on data released Monday. The Fed has bought only about $1.1 billion of junk bonds. Unlike investment-grade debt, the Fed buys junk-rated debt only through ETFs, which invest broadly in the debt of many companies. But the Fed’s action has had a dramatic effect on the market. The central bank’s intervention unclogged markets that seized up due to the pandemic, which has helped lower-rated issuers and private-equity firms, said Gregg Gelzinis, a senior policy analyst for the Center for American Progress, a liberal think tank. unk-bond yields peaked at 11.38 percent on March 23, the day the Fed unveiled its stimulus plans, and immediately declined sharply, based on the ICE BofA US High Yield Index Effective Yield. The index was at 5.41 percent on Monday, roughly the same level as last December.
