In late 2006, the company had grown its capital in reserves
to $361 million, and like all other lenders it couldn’t issue mortgages fast
enough for the Wall Street machine that used them to create high-risk, very
profitable bonds. At the height of the mortgage origination boom, Aegis
employed about 3,500 people, mostly in the Houston area. But Aegis lost it all
in just nine months when the market for mortgage loans tanked.

The failure calls into question the management and health of
Cerberus’s other loan plays. Cerberus owns a majority stake in GMAC and its
mortgage subsidiary ResCap. Thanks to the credit crunch, the ratings agencies
have downgraded ResCap, thus making it more expensive for the company to
operate. The rising cost of capital may hurt Chrysler Financial, too, the
healthy operation within Chrysler that should have been able to help fund the
ailing automaker’s turnaround. At a minimum, Cerberus will take a financial hit
because of Aegis and the bankruptcy is an embarrassment amid the firm’s recent
spate of high-profile acquisitions.

“Cerberus has become a major player in the global
economy. Its many constituents rightly will expect a higher standard of
behavior than was exhibited last week with Aegis,” says Thompson. It’s a
sober reminder that even the vaunted geniuses of private equity can’t save
every company, and that employees – more than investors – are the real victims
when they go under.

Do you think this is a sign of what would happen if more
private equity deals go bust? Tell us what you think.