Fitch: PE-owned companies account for 29% of defaults

The ratings agency's latest report found that recovery rates for LBO and non-LBO debt were broadly comparable.

Research from Fitch Ratings shows that since 2007, companies acquired via LBO have accounted for 29 percent of all defaults captured by the agency's US high yield and leveraged loan default indices.

In the run-up to the financial crisis (2004-2007), high yield bond and leveraged loan issuance supporting buyouts totalled almost $500 billion, Fitch said. Companies acquired via LBO from that era which have since defaulted account for $55.3 billion in bonds and $64.5 billion in loans, it found.

Of the $120 billion total, 63 percent of the total were loans or bonds sold between 2004 and 2007, with the remained accounted for by debt that was refinanced in the period 2008 to 2014, Fitch added.

There has not, however, been a discernable bias towards either LBO or non-LBO debt with regard to recovery outcomes. The average 30-day post-default recovery price on LBO bonds between 2007 and 2014 was 47 percent of par, compared to a non-LBO equivalent of 45 percent of par.

For leveraged first lien loans, the 30-day post-default recovery price was 61 percent for LBO debt versus 63 percent for non-LBOs.

Fitch added that the recent, and long-anticipated bankruptcy of private equity-owned Texan power company Energy Future Holdings, propelled the US high yield and leveraged loan trailing 12-month default rates to multiyear highs of 2.8 percent and 3.9 percent in April.

It also added that EFH, the largest LBO default on record, was one of 10 LBO-related company defaults to have occurred this year, compared to 11 for the whole of 2013.