For slow-moving managers who do not exit quickly by unloading their company, default will probably be common.

Read this as a prediction about leveraged buyouts done in the 2006-07 boom: managers (private equity sponsors) who did not sell or refinance ('unload') their portfolio companies quickly would see frequent defaults in the downturn that followed. Judge it over the following credit cycle, through the end of 2010. 'Common' means defaults were frequent, not just a few. True: the data show default rates among PE/LBO-backed companies still held from that period were high in 2008-2010, for example clearly above the long-run average for speculative-grade debt, and analyses describe defaults or distressed exchanges as widespread among sponsors who had not exited. Mostly true: defaults were clearly raised and widespread among companies that had not been exited, but somewhat below what 'common' implies, or concentrated in some sectors. Mixed: default rates rose but stayed moderate, with widespread amend-and-extend deals keeping most holdings out of default. Mostly false: only a small rise in defaults among unexited LBO companies, with most avoiding default. False: LBO-backed company defaults stayed at or below normal levels over the period.

Set before the research began.

1. E1 Private Equity and the Resolution of Financial Distress Edie Hotchkiss (Boston College), David C. Smith (University of Virginia), Per Strömberg (Stockholm School of Economics; NBER; CEPR) · June 2010

   “PE-backed default rates range between 0.8% (2007) and 15.1% (2009), while control-firm defaults range between 0.3% (2007) and 5.4% (2009).”

2. E2 Private Equity and the Resolution of Financial Distress Edie Hotchkiss (Boston College), David C. Smith (University of Virginia), Per Strömberg (Stockholm School of Economics; NBER; CEPR) · June 2010

   “Annual PE-backed defaults exceed control defaults in every year in our sample, though both sets of firms experience their peak default rates in the same years, 2001 and 2008.”

3. E3 Private equity-backed companies weathered “Great Recession” better than peers, new PEC study finds American Investment Council (press release on Private Equity Council study) · 31 March 2010

   “The study found that the annualized default rate for the more than 3,200 private equity-backed companies acquired between 2000 and 2009 and held through 2008-2009 was 2.8 percent during the two-year recession. That compares to a 6.2 percent annualized default rate for similarly-financed businesses.”

4. E4 Private equity-backed companies weathered “Great Recession” better than peers, new PEC study finds American Investment Council (press release on Private Equity Council study) · 31 March 2010

   “Moody’s and S&P both have produced research documents suggesting that private equity-backed company default rates are higher than supported by the data analyzed by the PEC.”

The evidence conflicts. [E1] reports a 15.1% default rate for PE-backed firms in 2009 against 5.4% for control firms, while [E3] reports a 2.8% annualized rate for PE-backed companies held through 2008-2009 against 6.2% for comparable businesses. None of the evidence gives speculative-grade benchmarks or looks specifically at 2006-07 buyouts that sponsors had not exited, so the criteria cannot be applied with confidence.