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The mountain of cash held by private-equity firms is turning out to be a mirage for companies they own that are struggling due to the coronavirus pandemic, the Wall Street Journal reported. The buyout industry has spent years building up its dry powder, or money that investors have committed to private-equity funds that hasn’t yet been spent. That pile was at a record $1.45 trillion globally as of June, excluding venture-capital funds, according to data provider Preqin Ltd. Yet all this dry powder has done little to soften the pandemic’s blow to companies owned by buyout firms. From retailers to restaurants and rental companies, businesses owned by private equity have toppled into bankruptcy since coronavirus lockdowns began in the U.S. in March. Thirty-four U.S. private-equity-backed companies filed for bankruptcy from March 1 through June 14, according to data provider PitchBook Inc., including well-known names such as Hertz Global Holdings Inc., Neiman Marcus Group Inc. and J.Crew Group Inc. The private-equity owners of some bankrupt companies had no shortage of cash to spend. Ares Management Corp., which bought Neiman Marcus in 2013 alongside the Canada Pension Plan Investment Board, was sitting on more than $33 billion of dry powder shortly before the luxury retailer filed for bankruptcy last month. Ares declined to comment, and the CPPIB didn’t respond to a request for comment.

Hedge fund Angelo Gordon & Co. aims to raise as much as $1.5 billion to buy the debt of distressed oil and gas companies, Reuters reported. The U.S. shale boom, financed by access to cheap capital, is drying up as weak oil and gas prices and investors’ reluctance to refinance debt has companies cutting production and some seeking protection from creditors. U.S. output is expected to fall as much as 2 million barrels per day this year. The Angelo Gordon fund will be called AG Energy Credit Opportunities Fund IV LP and will seek to acquire distressed debt in the oil exploration and production, pipeline and services sectors. 

CBL & Associates Properties Inc. hired Moelis & Co. and Weil Gotshal & Manges as it seeks advice on strategic and financing options including restructuring, Bloomberg News reported. The owner of shopping malls is exploring ways to recapitalize including an exchange offer, in which senior holders of unsecured debt swap their investments for secured debt. The Chattanooga, Tennessee-based company may also discuss a chapter 11 bankruptcy filing as a last resort. A group of CBL’s creditors has hired advisers including PJT Partners Inc. and Akin Gump Strauss Hauer & Feld. The real estate investment trust’s shares fell as much as 11 percent yesterday. They have dropped 68 percent this year, cutting the company’s market capitalization to $63 million. CBL operates more than 100 properties across 26 states, most of which are so-called Class B malls, and has been hurt in part by the closures of retailers including Forever 21. Its top tenants based on revenue at year-end included L Brands Inc., Signet Jewelers Ltd., Foot Locker Inc., a unit of American Eagle Outfitters Inc., Dick’s Sporting Goods Inc. and Ascena Retail Group Inc., filings show. CBL said this month that it was taking actions to offset the anticipated impacts of the COVID-19 pandemic on revenue and cash flow. Chairman Charles Lebovitz, Chief Executive Officer Stephen Lebovitz, President Michael Lebovitz and independent directors agreed to reduce their salaries and fees by 50 percent.

Sen. Elizabeth Warren of (D-Mass. and Rep. Alexandria Ocasio-Cortez (D-N.Y.) escalated pushback against M&A during the pandemic, the New York Times reported. The two introduced the Pandemic Anti-Monopoly Act, which would temporarily block many corporate acquisitions, including those by companies with more than $100 million in revenue and those owned by private equity or hedge funds. It would also direct the Federal Trade Commission to block deals that “pose a risk to the government’s ability to respond to a national emergency.” The legislation expands on a M&A moratorium proposed by Rep. David Cicilline (D-R.I.), who leads the House antitrust panel. It’s the latest shot across the bow of the deal industry, particularly private equity. Investment firms have argued that they shouldn’t be singled out for punishment during the pandemic, and they have successfully lobbied on issues like expanded lending programs from the Fed. The proposal is unlikely to go anywhere in the Senate, which is controlled by Republicans. Noah Joshua Phillips, an F.T.C. commissioner, recently argued that regulators were capable of carefully scrutinizing mergers during the crisis.

Bondholders in particularly hard-hit sectors like energy, travel and leisure have another issue to watch for as companies struggle to survive the economic shutdown — getting demoted by new debt issues, Reuters reported. This phenomenon is known in the market as getting “primed” or “layered,” where a company in need of cash offers a bond backed by collateral (secured debt), which has seniority over any previously issued unsecured debt. Being at the top of the capital structure means that in a bankruptcy those investors get paid back first. Since the start of the coronavirus epidemic, this has happened to investors in the debt of movie theater chain AMC Entertainment, theme parks Six Flags Entertainment and Cedar Fair, propane supplier Ferrellgas Partners and cruise line Carnival Corp., according to a Reuters analysis. Of the new issues currently trading, all are priced far higher than where the remainder of the company’s debt is trading.

Rep. Rashida Tlaib (D-Mich.) called on private equity firm Thomas H. Lee Partners to pay for health insurance for Art Van Furniture workers who lost coverage after the Midwestern retailer shut down, Bloomberg News reported. Art Van filed for bankruptcy last month and told workers they would have 90 days of coverage as the retailer slowly sold off its stores. But as the new coronavirus spread, many states forced stores to shut down, turning the company’s liquidation into more of a fire sale. The company later told employees they would lose insurance about six weeks earlier than planned. Workers sent a letter on Tuesday asking Thomas H. Lee Partners, Art Van’s private equity owner, to restore their health coverage. Tlaib, who represents a district in Michigan that includes parts of Detroit, is the latest politician to call for more help for workers at bankrupt companies. Thomas H. Lee Partners bought Art Van and its real estate in 2017 from founder Art Van Elslander for $612.5 million, according to bankruptcy documents. The private equity firm did not make back its investment on that deal by the time of the liquidation. Tlaib was a sponsor of the House of Representatives version of the Stop Wall Street Looting Act introduced by Senator Elizabeth Warren last year. That bill would put private-equity firms on the hook for the debt of companies they buy and elevate worker claims in bankruptcy.

In the competition for a federal bailout, venture capital won the first round. Now, private equity is fighting back — and winning, according to a New York Times DealBook commentary. The first round was the $350 billion Paycheck Protection Program, which provides forgivable loans of up to 2.5 times companies’ monthly payroll. The program is limited to businesses with no more than 500 employees, and it specifically excludes financial firms. Businesses are flocking to the program, but the Small Business Administration initially barred most companies that are funded by venture and P.E. firms. The administration’s affiliate rule lumps together businesses with common controlling shareholders, so all of a firm’s majority-owned businesses count toward the employee limit. Private equity has lobbied vociferously for a waiver, but the government has not granted one. For most venture-backed companies, the problem is not majority ownership, but that the affiliate rule covers companies where an investor has “negative control” rights, like the ability to veto board decisions. Faced with forgoing a potential government grant or losing control rights, venture firms have rushed to eliminate these rights. Their extensive banking relationships also make them more attractive to lenders than unfamiliar mom and pop businesses. This only remaining issue for venture firms is a moral one, according to the commentary: Do they really need these loans? After all, V.C. and P.E. funds have nearly $1.5 trillion in uncalled capital, otherwise known as dry powder. The number of venture-backed companies that refused to participate in the program is unknown, but anecdotally there are some. The second round of bailout wrangling is where private equity is coming out on top, according to the commentary. Apollo successfully lobbied for another Fed program — the $100 billion Term Asset-Backed Securities Loan Facility — to purchase a wider range of investment-grade securities, particularly the mortgage-backed and commercial real estate debt popular among many P.E. firms. The need for this is obvious: If landlords don’t get paid (however politically popular that is) there are mass disruptions to the economy. P.E. firms can also get in on the Fed’s $600 billion Main Street Business Lending Program for midsize companies.