[jordanb]

Banks want to keep working with PE because banks have a lot of M&A business, and PE firms are the high-dealflow clients of their M&A arm. If Elliot (to pick a vulture at random) hires you to do mergers they're going to expect you to also help with the financing.

The banks don't end up being the bag-holders in any case, because they securitize the loans.

PE firms mostly make money on the management fees they charge the company, and by stripping assets, so they're often OK if they lose money on the ownership stake. In any case, the PE principals make money from their LPs with fat fees on assets under management so even if the entire investment goes south, it's the LPs who ultimately take the hit (5-10 years later) and not the principals.