Scores of Buyouts Are Facing Default; TROUBLE FOR ONE IN FOUR FIRMS BOUGHT IN HIGHLY LEVERAGED DEALS

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Byline: MARK FOXWELL

ONE in four European companies bought by private equity firms in highly leveraged buyouts is at risk of defaulting on loans within the next year, according to international investment bank Houlihan Lokey.

Brian McKay, head of investment banking for Europe, said of the more than 1,000 leveraged buyout (LBO) deals across the Continent, hundreds were likely to breach debt covenants - terms agreed with their banks - or default on payments and need to be restructured.

In most instances, new equity will be required and former owners will be left with little or nothing.

An LBO is where a buyer, usually a private equity firm, borrows money to acquire a business, with the assets being used as collateral for the loan.

Debt levels in the last LBO boom often topped ten times the amount of cash produced by the business each year.

However, McKay believes many LBOs, which would normally default on debt in this recession, will get through unscathed.

'This is because of the "covenant lite" trend over recent years,' he said. …