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Growth of Buyout Debt Worries Some Big Private-Equity Players

So far, stocks have managed to overcome the crisis in the subprime mortgage market. But what if there's another debt crisis looming?

Larry Fink, the chief executive of BlackRock Group, the trillion dollar fund management group, says he thinks the leveraged buyout market will become "tomorrow's problem".

In his comments to the Financial Times, Fink said liquidity is plentiful and demand is strong but lending "standards have deteriorated to levels that we never even dreamed we would see."

Similar warnings are coming from other top players in private equity, including Steven Rattner, managing principal of Quadrangle Group. He said earlier this month that "we are all feasting off the imprudence of our lenders."



"Of all the bubbles, the bubble in the credit market today is one of the greatest," Rattner added. "It is beyond any rational measure."

But it seems for every person sounding the alarm, there is someone who says, everything is fine. And those optimists are some of the biggest players in private equity as well--like Henry Kravis, founding partner of Kohlberg Kravis Roberts.

At a conference last week, Kravis said private equity is in a golden age--and that while the market has inflated quickly, there is little chance of a bubble bursting

Kravis also came armed with statistics. In 1987, the average deal was paid with 7% equity and 93% debt, he said. And in 2006, the average deal was paid with 33% equity and 66% debt.

Bottom line, Kravis said, is that there has been a five-fold increase in the amount of equity in deals done today.

Kravis is joined by David Rubenstein, managing partner of Carlysle Group. As recently as this month, Rubenstein told the Washington Post that he doesn't think private equity is in a financial bubble and says the industry is better able to weather any economic downturn.