Term Sheet

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This ain't Mitt Romney's private equity market

June 7, 2012: 11:20 AM ET

From a different era

Private equity is a lot different today than it was 20 years ago.

FORTUNE -- Something that keeps getting lost in the public debate over private equity is that today's PE market has a much different animal from the Romney-era private equity market. Debt-to-equity ratios are generally lower, fund sizes are exponentially larger and the institutional investor base has expanded to include public pension funds and sovereign wealth funds.

But here's something a bit less obvious, but equally important to the current conversation: Leveraged loans have become looser – either structurally via things like covenant-light, or subsequently via tactics like amend-and-extend.

The result has been that private equity firms have been able to maintain ownership of certain portfolio companies that would have gone bankrupt 10 or 15 years ago. For example, a lot has been made about Bain Capital's "failed" deal for medical diagnostics company Dade Behring. What hasn't gotten much play, however, was that Bain lost control due to a technical default partially related to a major currency fluctuation in Europe. A creditor swooped in, forced a prepackaged bankruptcy in 2002 and the company later recovered spectacularly (before being acquired by Siemens in 2007).

Had Bain originally bought Dade in 2006 instead of 1994, chances are that such technical defaults would not have caused Bain to lose control. This isn't to say that Bain necessarily would have kept all the employees on board or facilities operating – let alone sold it to Siemens – but the possibility would have been there. At the very least, Bain would not have been responsible for "bankrupting the company" (recap or no recap).

Just worth keeping such types of context in mind as the election season heats up…

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Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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