Businesses owned or supported by private equity (PE) are at a significantly higher risk of default compared to other large corporates, the Bank of England has cautioned.
According to new research, these companies are more vulnerable to financial instability, particularly when compared to firms that primarily rely on traditional lenders like banks.
The research highlighted that over two million UK workers are employed by businesses backed by private equity funds, which account for 15% of the country’s corporate debt. PE-backed companies are also more likely to face challenges meeting debt obligations due to lower earnings and returns relative to their interest expenses.
In 2023, more than one in five PE-backed companies were at risk of default, an improvement from one in four in 2022. However, this is still significantly higher than the default risk among listed companies (11%) and other large businesses (14%).
The Bank of England’s researchers found that private equity-backed firms are over twice as likely to rely on riskier forms of debt, such as private credit and leveraged syndicated loans, leaving them more exposed to market downturns and cash flow issues. The reliance on debt, combined with the higher interest rate environment, has increased refinancing risks for these businesses.
Support authors and subscribe to content
This is premium stuff. Subscribe to read the entire article.
