Lost, in translation

It used to be that private equity firms rarely communicated with the press. Now, all but the most secretive are fond of press releases when there's a bit of good news to deliver.

?Good news? usually means the closing of a fund, a promotion, the announcement of a proposed deal, the closing of a deal, the exit of a deal. In recent years, many firms have even gone as far as to detail what return was generated following an exit.

For obvious reasons, private equity firms rarely issue press releases on the occasion of bad news – staff departures, law suits, portfolio company wipeouts. Perhaps they should.

A spokesperson for Boston-based Thomas H. Lee Partners recently had to launch into damage-control mode following the publication of articles that applied an aggressive interpretation to the size of the firm's losses in Refco, the scandalized, bankrupt brokerage firm formerly led by Phillip Bennett.

A January 25 Reuters article stated that Thomas H. Lee Partners lost $1.36 billion as a result of Refco's collapse. The article cited SEC filings as a source.

The Reuters article got its $1.36 billion number by calculating the difference between the value of Thomas H. Lee Partner's public stake in Refco prior to the revelation of accounting fraud at the company and the value of the stake recently.

According to the Thomas H. Lee Partners spokesperson, however, the firm invested $453 million in equity in Refco, and subsequently took out $208 million through a dividend recapitalization and in the initial public offering. The firm has therefore lost $245 million on its Refco investment. The $1.36 billion represents an unrealized gain during happier times.

But that's not what the headlines looked like. A January 26 headline in the Los Angeles Times read ?Thomas H. Lee Loses $1.36 Billion on Refco.? A Bloomberg headline read ?Investor says troubles cost it $1.36 billion.? Last month, a report in Metal Bulletin repeated the $1.36 billion loss figure in its headline.

Most private equity bean counters draw a clear distinction between a potential gain and an actual equity loss. The nuances of this distinction can often get glossed over in the press, without direction from a media-savvy communications professional.