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It looks like Blackstone Group LP (NYSE: BX) will post its smallest profit since becoming a public company in June 2007.
Simply put, the firm relies on transactions -- which have ground to a halt. As a result, fees are likely to plunge. This is what happened to KKR Private Equity Investors LP, which recently reported 15% write-down of its portfolio.
Keep in mind that Blackstone will also need to come to terms with some mega-deals it struck before the credit crunch hit. An example is the firm's $26 billion leveraged buyout of Hilton Hotels.
True, it's a marquee asset. But the transaction was made when debt was dirt cheap. Blackstone raised about $20 billion in financing for the deal.
Now, with the global economy sliding into recession, it's inevitable that there will be cutbacks in travel.
How bad? Well, according to a piece in The Wall Street Journal, Blackstone may have lost its $6 billion equity investment on the deal.
No doubt, private equity is focused on the long term. And, when the economy makes a comeback, the valuation on Hilton should improve. However, in the meantime, it wouldn't be a surprise to see some large write-downs when Blackstone reports its Q3 numbers tomorrow.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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