The current coronavirus pandemic is not the first market downturn endured by PE industry veterans, with the 2008 global financial crisis being the most recent and prominent example. It is notable, however, in that it plunged otherwise healthy portfolio companies in affected industries into a stark and potentially fleeting downturn. In light of that, PE sponsors are uniquely incentivized to infuse rescue capital (i.e.
, salvation investments) into their portfolio companies to abate short-term liquidity issues until the pandemic subsides and the economy stabilizes. To explore what options are available to PE sponsors in this environment, the Private Equity Law Report interviewed Dechert partners Samantha Koplik and Nazim Zilkha about key factors surrounding rescue capital. This first article in a two-part series identifies multiple types of salvation investments that are suitable under various circumstances and how they are being deployed during the current coronavirus pandemic. The second article
will evaluate some of the process, conflict of interest, governance, tax and structural considerations a PE sponsor needs to weigh before providing rescue capital to a portfolio company. For more on liquidity during the coronavirus pandemic, see “Impact of Economic Uncertainty on PE Fundraising and Fund Formation Efforts (Part Two of Two)
” (May 26, 2020); and “Withstanding the Coronavirus Pandemic: Form ADV Filing Relief, Investor Communications and Liquidity Risks (Part One of Three)
” (Mar. 24, 2020).