It's Like Rain On Your Wedding Day ... Or Not

April 11, 2008

A certain temptation exists to label it "ironic" when a group of private equity firms, including Apollo Management, Blackstone Group and TPG, buy up $12 billion in discounted buyout debt (some of it their own).

After all, LBO shops negotiated the terms of the deals struck during the buyout boom, terms that investors eventually turned their backs on, leaving much of the debt from these deals lounging on banks' books. And now, these very same private equity firms are riding in and snatching up that very same debt, in this case from Citigroup, and at a healthy discount. Moreover, they will likely profit from it, seeing as the near rock bottom prices on these loans and bonds do not represent the fundamentals of many of the companies. Ironic, no? Profiting from a mess you helped create.

That depends on how you look at it. One definition of irony is: an outcome of events contrary to what was or might have been expected. But many argue that irony is more nuanced, that often we use it for circumstances that are merely improbable or coincidental in that they suggest no particular lessons about human vanity or folly.

In other words, if you expect the bus at 10:15, and it doesn't arrive, the bus is not ironic. It's simply late. But if you have an important appointment and decide to drive because the bus always arrives late, and then the bus shows up on time and runs you over as you cross the street to your car, that's ironic. Because you were foolish enough to think you could outsmart fate.

Likewise, when Alanis Morrisette sang about rain on your wedding day being ironic, she clearly didn't take into consideration that rain on your wedding day traditionally represents a good omen. Meaning that even if you don't expect the rain (which is silly anyway seeing as so many weddings take place in April) you probably do expect a joyful life with your new spouse, which is exactly what the rain is meant to bring you.

So, one could argue that because private equity firms are opportunistic money-making machines, their stepping in and opportunistically making money does not qualify as ironic in even the simplest sense. But it does qualify as good for the market. Citigroup will sell the debt at a loss, obviously not the best option for the beleaguered bank. But getting big chunks of last year's hung debt sold off is necessary to get the market moving again and bring prices back up. So for Citi and its investment banking rivals, better to suffer the short-term losses and get this mess over with than to let it drag on indefinitely. And there's nothing ironic about that.

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